-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LncFU6uxsmNsLYXlbNmX4nxn1fXeL02G0Dva6Bp0fMq3y7FVY6C2Q2JZDPuzGxhP SUgtL7Ncd7PgVojCY/ZXOg== 0000891618-96-002567.txt : 19961108 0000891618-96-002567.hdr.sgml : 19961108 ACCESSION NUMBER: 0000891618-96-002567 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960927 FILED AS OF DATE: 19961107 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAPTEC INC CENTRAL INDEX KEY: 0000709804 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 942748530 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15071 FILM NUMBER: 96656164 BUSINESS ADDRESS: STREET 1: 691 S MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4089458600 MAIL ADDRESS: STREET 1: 691 SOUTH MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 10-Q 1 FORM 10-Q FOR PERIOD ENDING 9/27/96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 For the quarterly period ended September 27, 1996 or Transition report pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 For the transition period from to Commission file number 0-15071 ADAPTEC, INC. (Exact name of registrant as specified in its charter) CALIFORNIA 94-2748530 (State of Incorporation) (I.R.S. Employer Identification No.) 691 S. MILPITAS BLVD., MILPITAS, CALIFORNIA 95035 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 945-8600 N/A (Former name, former address and former fiscal year, if changed since last report) 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 --- --- The number of shares outstanding of common stock as of October 23, 1996 was 55,248,436. This document consists of 18 pages, excluding exhibits, of which this is page 1. 2 TABLE OF CONTENTS
Page Part I. Financial Information Item 1. Financial Statements: Condensed Consolidated Statements of Operations 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Notes To Condensed Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: Results of Operations 9-10 Liquidity and Capital Resources 11 Certain Factors Bearing on Future Results 12-15 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18
2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Month Six Month Period Ended Period Ended ------------ ------------ Sept. 27, Sept. 29, Sept. 27, Sept. 29, (in thousands, except per share data) 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------ Net revenues $215,043 $149,110 $417,057 $287,135 Cost of revenues 92,550 62,659 178,596 119,325 - ------------------------------------------------------------------------------------------------------------ Gross profit 122,493 86,451 238,461 167,810 - ------------------------------------------------------------------------------------------------------------ Operating expenses: Research and development 30,633 18,940 58,480 37,167 Sales and marketing 24,889 18,773 48,603 35,850 General and administrative 11,047 7,593 21,257 14,735 Write-off of acquired in-process technology and other 42,405 40,554 68,905 40,554 - ------------------------------------------------------------------------------------------------------------ Total operating expenses 108,974 85,860 197,245 128,306 - ------------------------------------------------------------------------------------------------------------ Income from operations 13,519 591 41,216 39,504 Interest income, net of interest expense 2,266 2,659 4,933 5,297 - ------------------------------------------------------------------------------------------------------------ Income before provision for income taxes 15,785 3,250 46,149 44,801 Provision for income taxes 14,548 2,693 26,998 13,081 - ------------------------------------------------------------------------------------------------------------ Net income $ 1,237 $ 557 $ 19,151 $ 31,720 ============================================================================================================ Net income per share $ .02 $ .01 $ .34 $ .59 ============================================================================================================ Weighted average common and common equivalent shares outstanding 56,820 54,461 56,254 54,201 ============================================================================================================
See accompanying notes. 3 4 ADAPTEC, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
September 27, March 31, (in thousands) 1996 1996* - ----------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 52,817 $ 91,211 Marketable securities 158,014 204,283 Accounts receivable, net 123,813 89,487 Inventories 65,432 55,028 Prepaid expenses and other 29,633 25,271 - ----------------------------------------------------------------------------------- Total current assets 429,709 465,280 - ----------------------------------------------------------------------------------- Property and equipment, net 128,308 92,778 - ----------------------------------------------------------------------------------- Other assets 101,564 88,428 - ----------------------------------------------------------------------------------- $659,581 $646,486 =================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,400 $ 3,400 Note payable -- 46,200 Accounts payable 29,736 23,974 Accrued liabilities 63,833 56,717 - ----------------------------------------------------------------------------------- Total current liabilities 96,969 130,291 - ----------------------------------------------------------------------------------- Long-term debt, net of current portion 2,550 4,250 - ----------------------------------------------------------------------------------- Shareholders' equity: Common stock 211,981 182,932 Retained earnings 348,081 329,013 - ----------------------------------------------------------------------------------- Total shareholders' equity 560,062 511,945 - ----------------------------------------------------------------------------------- $659,581 $646,486 ===================================================================================
See accompanying notes. * Amounts are derived from the March 31, 1996 audited financial statements. 4 5 ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six-Month Period Ended ---------------------- September 27, September 29, (in thousands) 1996 1995 - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 19,151 $ 31,720 Adjustments to reconcile net income to net cash provided by operating activities: Write-off of acquired in-process technology, net of taxes 65,434 32,631 Depreciation and amortization 12,492 8,135 Changes in assets and liabilities: Accounts receivable (31,930) (24,128) Inventories (311) (2,120) Prepaid expenses (2,524) 1,006 Other assets (490) (271) Accounts payable 3,308 (5,496) Accrued liabilities 6,303 19,099 - ---------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 71,433 60,576 - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of certain net assets of Western Digital's Connectivity Solutions Group, Corel, Inc. and Data Kinesis, Inc. (75,365) (24,489) Purchase of property and equipment (43,445) (11,500) Sales of (investment in) marketable securities, net 46,269 (38,729) - ---------------------------------------------------------------------------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (72,541) (74,718) - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of short-term note (46,200) -- Proceeds from issuance of common stock 10,614 7,891 Repurchase of common stock -- (7,765) Principal payments on long-term debt (1,700) (1,700) - ---------------------------------------------------------------------------------------------------- NET CASH USED FOR FINANCING ACTIVITIES (37,286) (1,574) - ---------------------------------------------------------------------------------------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (38,394) (15,716) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 91,211 66,835 - ---------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,817 $ 51,119 ====================================================================================================
See accompanying notes. 5 6 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 27, 1996 (unaudited) 1. Basis of Presentation In the opinion of management, the unaudited condensed consolidated interim financial statements included herein have been prepared on the same basis as the March 31, 1996 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission, but omit certain information and footnote disclosures necessary to present the statements in accordance with generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes thereto included in Adaptec's (the Company) Annual Report on Form 10-K for the year ended March 31, 1996. The results of operations for the three and six month periods ended September 27, 1996 are not necessarily indicative of the results to be expected for the entire year. 2. Supplemental Disclosures of Cash Flows Cash paid for interest and income taxes is as follows (in thousands):
Six-Month Period Ended ---------------------- September 27, September 29, 1996 1995 ---- ---- Interest $ 408 421 Income taxes $33,496 $14,327
3. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventory are as follows (in thousands):
September 27, March 31, 1996 1996 ---- ---- Raw materials $16,958 $23,415 Work in process 21,608 12,865 Finished goods 26,866 18,748 ------- ------- $65,432 $55,028 ======= =======
6 7 4. Net Income Per Share Net income per share for the three and six month periods ended September 27, 1996 and September 29, 1995, is computed under the treasury stock method using the weighted average number of common and common equivalent shares from dilutive stock options outstanding during the respective periods. 5. Acquisitions On April 9, 1996, the Company acquired certain assets and the ongoing business of Western Digital's Connectivity Solutions Group (CSG) for $33 million cash. CSG supplies silicon solutions to meet the demands of the multi-gigabyte SCSI disk drive market. On June 28, 1996, the Company acquired certain technologies from Corel, Inc. for $12 million cash. Included in these technologies was Corel's CD creator product for the CD-recordable software market. Additionally, on September 16, 1996, the Company acquired Data Kinesis, Inc. (DKI) for $32 million and $15 million in cash and stock, respectively. DKI develops software for improving system performance in file management and RAID applications. The Company accounted for these acquisitions using the purchase method of accounting, and excluding the $67 million write-off of purchased in-process technology from these companies, the aggregate impact on the Company's results of operations from the acquisition date was not material. The allocation of the Company's aggregate purchase price to the tangible and identifiable intangible assets acquired was based on preliminary independent appraisals and is summarized as follows (in thousands): Tangible assets $10,135 In-process technology 67,200 Goodwill 14,370 ------- Assets acquired $91,705 =======
The tangible assets acquired were primarily comprised of inventory and fixed assets. Acquired in-process technology was written off in the periods in which the acquisitions were completed, and the goodwill is being amortized over respective benefit periods ranging from three to five years. On August 12, 1996, the Company completed its acquisition of Cogent Data Technologies, Inc. (Cogent). Cogent provides high-performance Fast Ethernet products for the networking market. The Company acquired all of the outstanding capital stock of Cogent in exchange for 1.3 million shares of its common stock. Additionally, the Company incurred $1.7 million in professional fees related to this acquisition which have been included in "write-off of acquired in-process technology and other." The Company has recorded this acquisition using the pooling method of accounting. Cogent's historical operations have not been material to the Company's consolidated financial statements and, therefore, have not been reflected in the Company's consolidated financial results prior to the acquisition. Beginning at the date of acquisition, the book value of the acquired assets and assumed liabilities as well as the results of Cogent's operations, all of which are not material to the Company have been combined with those of the Company. 7 8 6. Income Taxes The Company recorded a tax provision of $14.5 million (92% of income before income taxes) for the three month period ended September 27, 1996. The higher effective tax rate for the three and six month periods ended September 27, 1996 primarily resulted from the write-off of in-process technology for which the Company will receive no tax benefit. Excluding the effect of the write-off of in-process technology, the Company's effective tax rate was 25% for both the three and six month periods ended September 27, 1996. The difference between the Company's effective tax rate and the federal statutory rate is primarily due to income earned in Singapore where the Company is subject to a significantly lower effective tax rate. 7. Subsequent Events Subsequent to September 27, 1996, the Board of Director's approved a two-for-one split of the Company's common stock for shareholders of record as of November 1, 1996. The stock split will increase common stock outstanding from approximately 55 million to approximately 110 million. The effect of the stock split is not reflected in the Company's condensed consolidated statements of operations. 8 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth the items in the condensed consolidated statements of operations as a percentage of net revenues:
Three Month Six Month Period Ended Period Ended ------------ ------------ Sept. 27, Sept. 29, Sept. 27, Sept. 29, 1996 1995 1996 1995 ---- ---- ---- ---- Net revenues 100.0% 100.0% 100.0% 100.0% Cost of revenues 43.0 42.0 42.8 41.6 ----- ----- ----- ----- Gross profit 57.0 58.0 57.2 58.4 ----- ----- ----- ----- Operating expenses: Research and development 14.3 12.7 14.0 12.9 Sales and marketing 11.6 12.6 11.7 12.5 General and administrative 5.1 5.1 5.1 5.1 Write-off of acquired in-process technology and other 19.7 27.2 16.5 14.1 ----- ----- ----- ----- 50.7 57.6 47.3 44.6 ----- ----- ----- ----- Income from operations 6.3 0.4 9.9 13.8 Interest income, net 1.0 1.8 1.2 1.8 ----- ----- ----- ----- Income before provision for income taxes 7.3 2.2 11.1 15.6 Provision for income taxes 6.7 1.8 6.5 4.6 ----- ----- ----- ----- Net income 0.6% 0.4% 4.6% 11.0% ===== ===== ===== =====
Net Revenues Net revenues increased 44% to $215 million in the second quarter of fiscal 1997 and 45% to $417 million in the first half of fiscal 1997, from $149 million and $287 million in the corresponding periods of fiscal 1996. This growth was primarily attributable to increased shipments of the Company's host adapters and proprietary integrated circuits (ICs) for mass storage devices compared to the same periods a year ago. This increase in shipments was due to the continued growth in the markets for high-performance microcomputers and servers for networking applications, continued demand for SCSI in the client/server environment and an increase in the use of diverse peripherals in microcomputer systems compared to the same periods a year ago. 9 10 Gross Margin Gross margins for the second quarter and the first half of fiscal 1997 were 57% compared to 58% for the three months ended September 29, 1995 and first half of fiscal 1996. The slight decrease in percentage was primarily due to the mix of products shipped, which included a greater percentage of mass storage ICs and Fast Ethernet products from the Cogent acquisition. During the quarter, the Company continued to focus on reducing its component costs as well as implementing design efficiencies. The Company's ability to maintain current gross margins can be significantly affected by the mix of products shipped. Additionally margins can be affected by competitive price pressures, the timeliness of volume shipments of new products and the Company's ability to achieve manufacturing cost reductions. Operating Expenses Research and development expenses as a percentage of net revenues were 14% during the second quarter and first half of fiscal 1997 compared to 13% in the corresponding periods of fiscal 1996. Actual spending for research and development increased from the corresponding periods of fiscal 1996 by 62% to $31 million in the second quarter and 57% to $58 million in the first half of fiscal 1997. This increased spending was a result of the Company's continued development of serial architectures such as Fibre Channel and 1394, networking products, as well as its ongoing commitment to enhancing its core SCSI business. Sales and marketing expenses remained relatively consistent as a percentage of revenues in both the second quarter and first half of fiscal 1997 compared to fiscal 1996. Actual sales and marketing expenses increased from the corresponding periods of fiscal 1996 by 33% to $25 million in the second quarter and 36% to $49 million in the first half of fiscal 1997. The increase in actual spending was primarily a result of advertising and promotional programs aimed at introducing new technologies and generating demand for the Company's products and increased staffing levels to support the continued growth of the Company. General and administrative expenses as a percentage of net revenues remained consistent at 5% in the second quarter and first half of fiscal 1997 from the comparable fiscal 1996 periods. Actual spending increased from a year ago primarily due to costs associated with increased staffing levels to support the Company's growth. Interest and Income Taxes Interest income, net of interest expense, decreased 15% to $2.3 million in the second quarter and 7% to $4.9 million in the first half of fiscal 1997 compared with the respective periods in fiscal 1996. This was due to lower cash, cash equivalents, and marketable securities balances in the current year primarily as a result of the Company's various strategic acquisitions. As discussed under Note 6 of the Notes to Condensed Consolidated Financial Statements in this report, the Company recorded a tax provision of $14.5 million (92% of income before income taxes) for the three month period ended September 27, 1996. The higher effective tax rate for the three and six month periods ended September 27, 1996 primarily resulted from the write-off of in-process technology for which the Company will receive no tax benefit. Excluding the effect of the write-off of in-process technology, the Company's effective tax rate was 25% for both the three and six month periods ended September 27, 1996. The difference between the Company's effective tax rate and the federal statutory rate is primarily due to income earned in Singapore where the Company is subject to a significantly lower effective tax rate. 10 11 Liquidity and Capital Resources Operating Activities Net cash generated by operations for the first half of fiscal 1997 was $71 million compared with $61 million for the first half of fiscal 1996. During the first half of fiscal 1997, the majority of funds generated from operations resulted from $19 million of net income adjusted by non-cash items including a non-recurring write-off of acquired in-process technology of $67 million, and depreciation and amortization of $12 million. Additionally contributing to favorable operating cash flows was an increase in accrued liabilities and accounts payable totaling $10 million mainly resulting from increased operations and staffing. Primarily offsetting these items was an increase in accounts receivable of $32 million resulting from the timing and increases of shipments during the quarter. Investing Activities During the first half of fiscal 1997, the Company paid a total of $75 million for the acquisition of CSG, DKI, and certain technologies from Corel, Inc. The Company also continued to invest in equipment for product development, IC testing, board level production, and made various building and leasehold improvements to its facilities. Additionally, in connection with an agreement with Lucent Technologies to secure capacity for wafer fabrication, the Company purchased $17 million of fabrication equipment which is consigned to Lucent's fab in Madrid, Spain. The Company anticipates capital expenditures relating to property and equipment of approximately $70 million for the remainder of fiscal 1997. The Company may also make investments for increased capacity for wafer fabrication or acquisitions of complimentary businesses, products, or technologies. During the first half of fiscal 1997, the Company also received $46 million from sales of marketable securities for its acquisitions in the current fiscal year. The Company believes existing working capital, together with expected cash flows from operations and available sources of bank, equity, debt and equipment financing, will be sufficient to support its operations at least through fiscal 1997. Financing Activities In connection with an agreement with Taiwan Semiconductor Manufacturing Co., Ltd. (TSMC) that ensures availability of a portion of the Company's wafer capacity for both current and future technologies, the Company paid a short-term note of $46 million due to TSMC. In return for this advance payment, the Company will receive guaranteed future wafer capacity and a discount on purchases that exceed certain prescribed minimum quantities. Additionally, in connection with this agreement, the Company will receive access to future process technology. During the first half of fiscal 1997, the Company received proceeds from common stock issued under the employee stock option and employee stock purchase plans totaling $8 million and $3 million, respectively. 11 12 Certain Factors Bearing on Future Results The following risk factors should be considered by anyone contemplating an investment in the Company's Common Stock. In addition, the Company and its representatives may from time to time make forward-looking statements, and the following are important factors that could cause actual results to differ materially from those projected in any such forward-looking statements. Dependence on the High-Performance Microcomputer Market. The Company's board-based I/O solutions are used primarily in high performance computer systems designed to support I/O intensive applications and operating systems. Historically, the Company's growth has been supported by increasing demand for systems which support networking applications, multitasking, CAD/CAM, desktop publishing, multimedia, and video. Should the growth of demand for such systems slow, the Company's revenues and operating results could be adversely affected by a decline in demand for the Company's products and increased pricing pressures from both competitors and customers. Certain Risks Associated with Computer Peripherals Market. As a supplier of controller circuits to manufacturers of computer peripherals such as disk drives and other storage devices, a portion of the Company's business is dependent on the overall market for computer peripherals. This market, which itself is dependent on the market for personal computers, has historically been characterized by periods of rapid growth followed by periods of oversupply and contraction. As a result, suppliers to the computer peripherals industry from time to time experience large and sudden fluctuations in demand for their products as their customers adjust to changing conditions in their markets. If these fluctuations are not accurately anticipated, such suppliers, including the Company, could produce excessive or insufficient inventories of various components which could materially and adversely affect the Company's business and results of operations. The computer peripherals industry is also characterized by intense price competition which in turn creates pricing pressures on the suppliers to that industry. If the Company is unable to correspondingly decrease its manufacturing or component costs, such pricing pressures could have a material adverse effect on the Company's operating results. Future Operating Results Subject to Fluctuation. The Company's operating results may fluctuate in the future as a result of a number of factors, including variations in the Company's sales channels or the mix of products it sells, changes in pricing policies by the Company's suppliers, cancellations or postponements of orders, the timing of acquisitions of other businesses, products and technologies and any associated charges to earnings and the market acceptance of new and enhanced versions of the Company's products. The volume and timing of orders received during a quarter are difficult to forecast. The Company's customers from time to time encounter uncertain and changing demand for their products. Customers generally order based on their forecasts. If demand falls below such forecasts or if customers do not control inventories effectively, they may cancel or reschedule shipments previously ordered from the Company. Additionally, the Company has historically operated with a relatively small backlog, especially relating to orders of its board-based I/O solutions. Further, the Company's expense levels are based in part on expectations of future revenues, and the Company has been significantly increasing and intends to continue to increase operating expenditures and working capital balances as it expands its operations. As a result of the difficulty of forecasting revenues and the Company's planned growth in spending, operating expenses could be disproportionately high for a given quarter, and the Company's operating results for that quarter, and potentially future quarters, would be adversely affected. Operating results in any particular quarter which do not meet the expectations of securities analysts could cause volatility in the price of the Company's Common Stock. 12 13 Certain Issues Related to Distributors. The Company's distributors generally offer a diverse array of products from several different manufacturers. Accordingly, there is a risk that these distributors may give higher priority to selling products from other suppliers, thus reducing their efforts to sell the Company's products. A reduction in sales efforts by one or more of the Company's current distributors or a termination of any distributor relationship with the Company could have a materially adverse effect on its business and operating results. The Company's distributors may on occasion build inventories in anticipation of substantial growth in sales, and if such growth does not occur as rapidly as anticipated, distributors may decrease the amount of product ordered from the Company in subsequent quarters. Such a slowdown in orders could reduce the Company's revenues in any given quarter and give rise to fluctuation in the Company's operating results. In addition, while the Company believes that its major distributors are currently adequately capitalized, no assurance can be given that one or more of its distributors will not experience financial difficulties. The failure of one or more of the Company's distributors to pay for products ordered could have a materially adverse effect on the Company's business or operating results. Uncertainty of Timing and Amount of Capital Expenditures. Predicting the timing and amount of capital expenditures is difficult for a number of reasons, including (i) the fact that opportunities to acquire other businesses, products and technologies of interest to the Company may arise on short notice and require substantial amounts of capital and (ii) that in the increasingly competitive market for wafer supplies, wafer manufacturers have been frequently requiring substantial capital commitments by customers in order to obtain guaranteed wafer capacity. Opportunities to obtain such capacity can arise on relatively short notice and require significant capital and other commitments on the part of the Company. Dependence on Suppliers. The majority of the Company's ICs are manufactured by a limited number of suppliers. The Company may from time to time experience delays in obtaining wafers from its foundries. In addition, though the Company has various supply agreements with its suppliers, a shortage of raw materials or production capacity could lead any of the Company's wafer suppliers to allocate available capacity to customers other than the Company, or to internal uses, which could interrupt the Company's ability to meet its product delivery obligations. Any inability or unwillingness of the Company's wafer suppliers to provide adequate quantities of finished wafers to satisfy the Company's needs in a timely manner would delay production and product shipments and could have a materially adverse effect on the Company's business or operating results. Also, if the Company's current independent wafer manufacturers were unable or unwilling to manufacture the Company's products as required, it would have to identify and qualify additional foundries. No assurance can be given that any additional wafer foundries would become available or be able to satisfy the Company's requirements on a timely basis or that qualification would be successful. To secure an adequate supply of wafers, the Company has entered and may continue to enter into various supply arrangements requiring advance deposits to secure commitments from foundries for specified levels of manufacturing capacity over extended periods. No assurance can be given as to the effect of any such transaction on the Company's business, financial condition, or operating results. Additionally, the Company relies on subcontractors for the assembly and packaging of a portion of its products. There can be no assurance that these subcontractors will continue to be able and willing to meet the Company's requirements for such components or services. Any significant disruption in supplies from, or degradation in the quality of components or services supplied by, these subcontractors could delay shipments and result in the loss of customers or revenues or otherwise have a materially adverse effect on the Company's business, financial condition, or results of operations. 13 14 International Operations and Markets. The Company's manufacturing facility and various subcontractors it utilizes from time to time are located primarily in Asia. Additionally the Company has various sales offices and customers throughout Europe, Japan, and other countries. The Company's international operations and sales are subject to political and economic risks, including political instability, currency controls, exchange rate fluctuations, and changes in import/export regulations, tariffs and freight rates. Key Personnel; Management of Growth and Acquisitions. The Company has in recent periods experienced growth in its operations and the number of its employees. Additionally during the past year, the Company completed several acquisitions of other companies resulting in increased responsibilities for its management. The success of the Company is dependent in large part on its ability to effectively manage its operations, integrate acquisitions, and retain its key employees. Reliance on Industry Standards. The computer industry is characterized by various standards and protocols that evolve with time. The Company's current products are designed to conform to certain industry standards and protocols such as SCSI, UltraSCSI, PCI, RAID, ATM and Fast Ethernet. If consumer acceptance of these standards was to decline or if they were replaced with new standards, and if the Company did not anticipate these changes and develop new products, the Company's business and operating results could be materially adversely affected. Technological Change; Dependence on New Products. The markets for the Company's products are characterized by rapidly changing technology, frequent new product introductions and declining average selling prices over product life cycles. The Company's future success is highly dependent upon the timely completion and introduction of new products at competitive price/performance levels. As new technologies emerge, the Company could be adversely affected if it does not effectively market competitive products. Also, the Company's revenues could be adversely impacted if its customers shifted their demand to a significant extent away from board-based I/O solutions to application-specific ICs. Need for Interoperability. The Company's products must be designed to interoperate effectively with a variety of hardware and software products supplied by other manufacturers, including microprocessors, peripherals and operating system software. The Company depends on significant cooperation with these manufacturers in order to achieve its design objectives and produce products that interoperate successfully. While the Company believes that it generally has good relationships with leading system, peripheral and microprocessor suppliers, there can be no assurance that such suppliers will not from time to time make it more difficult for the Company to design its products for successful interoperability or decide to compete with the Company. Competition. As the Company has continued to broaden its bandwidth management product offerings into the desktop, server and networking environments, it has experienced competition from additional companies. The Company must continue to respond to these current and new competitors, who may choose to increase their presence in its markets. If the Company is unable to make timely introduction of new leading-edge solutions or respond to competitive threats, its business and operating results could be materially adversely affected. 14 15 Intellectual Property. The Company has historically devoted significant resources to research and development and believes that the intellectual property derived from such research and development is a valuable asset that has been and will continue to be important to the success of the Company's business. Although the Company maintains an intellectual property protection program, no assurance can be given that the steps taken by the Company will be adequate to protect its proprietary rights. In addition, the laws of certain territories in which the Company's products are or may be developed, manufactured, or sold, including Asia and Europe, may not protect the Company's products and intellectual property rights to the same extent as the laws of the United States. The Company has from time to time discovered counterfeit copies of its products being manufactured or sold by others. Although the Company maintains an active program to detect and deter infringement of its intellectual property, should counterfeit products become available in the market to any significant degree it could adversely affect the business and operating results of the Company. Volatility of Stock Price. The stock market in general, and the market for shares of technology companies in particular, have from time to time experienced extreme price fluctuations, which have often been unrelated to the operating performance of the affected companies. In addition, factors such as technological innovations or new product introductions by the Company, its competitors or its customers may have a significant impact on the market price of the Company's Common Stock. Furthermore, quarter-to-quarter fluctuations in the Company's results of operations caused by changes in customer demand, changes in the microcomputer and peripherals markets, or other factors, may have a significant impact on the market price of the Company's Common Stock. These conditions, as well as factors which generally affect the market for stocks of high technology companies, could cause the price of the Company's stock to fluctuate substantially over short periods. 15 16 Part II. OTHER INFORMATION Item 4. Submissions of Matters to a Vote of Security Holders The Company held its Annual Meeting of shareholders on August 22, 1996. Out of 53,368,673 shares of Common Stock entitled to vote at such meeting, there were present in person or by proxy 47,694,331 shares. At the Annual meeting, the shareholders of the Company approved the following matters: (a) The election of John G. Adler, Laurence B. Boucher, Carl J. Conti, John C. East, Robert J. Loarie, B. J. Moore, W. Ferrell Sanders, F. Grant Saviers and Philip E. White as directors of the Company for the ensuing year and until their successors are elected. The vote for the nominated directors was as follows: John G. Adler, 47,592,699 votes cast for and 101,632 votes withheld; Laurence B. Boucher, 47,589,516 votes cast for and 104,815 votes withheld; Carl J. Conti, 47,549,365 votes cast for and 144,966 votes withheld; John C. East, 47,549,697 votes cast for and 144,634 votes withheld; Robert J. Loarie, 47,627,077 votes cast for and 67,254 votes withheld; B.J. Moore 47,627,049 votes cast for and 67,282 votes withheld; W. Ferrell Sanders 47,629,579 votes cast for and 64,752 votes withheld; F. Grant Saviers, 47,590,496 votes cast for and 103,835 votes withheld, Phillip E. White 47,625,456 votes cast for and 68,875 votes withheld; (b) An amendment to the Company's Amended and Restated Bylaws to establish the range for the authorized number of directors to be seven to twelve with the exact number to be fixed by the Board. 46,296,449 votes were cast for approval; 465,583 votes were cast against; 63,116 votes abstained and 869,183 were broker non-votes; (c) An amendment to the 1990 Director's Option Plan to (i) increase the shares reserved for issuance thereunder by 400,000 to a total of 1,100,000 (ii) increase the term of options granted thereunder from five to ten years, and (iii) amend the vesting provisions of subsequent annual option grants so that such grants will vest quarterly over a one year period. 28,656,850 votes were cast for approval; 18,730,360 votes were cast against; 108,683 votes abstained and 198,438 were broker non-votes; (d) Ratification of the appointment of Price Waterhouse LLP as the independent accountants of the Company for the fiscal year ending March 31, 1997. 47,646,991 votes were cast for approval; 24,890 votes were cast against and 22,450 votes abstained. 16 17 Item 6. Exhibits and Reports on Form 8-K EXHIBIT NUMBER DESCRIPTION 2.1 Agreement and Plan of Reorganization by and among Adaptec, Inc., Cogent Data Technologies, Inc., CDT Acquisition Corp., and Certain Shareholders of Cogent Data Technologies, Inc. dated May 31, 1996. 2.2 Agreement and Plan of Reorganization by and among Adaptec, Inc., Adaptec Acquisition Corporation, and Data Kinesis, Inc. dated August 6, 1996. 27.1 Financial Data Schedule for the three months ended September 27, 1996. The agreements mentioned in 2.1 and 2.2 contain certain exhibits which have been omitted. Such exhibits are described within the agreements and can be furnished by the Company to the Commission upon request. No Reports on Form 8-K were filed during the quarter. 17 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADAPTEC, INC. ---------------------------------------- Registrant /s/ PAUL G. HANSEN ---------------------------------------- Paul G. Hansen, Vice-President, Finance and Chief Financial Officer (Principal Financial Officer), Assistant Secretary Date: November 5, 1996 /s/ ANDREW J. BROWN ---------------------------------------- Andrew J. Brown, Vice-President and Corporate Controller (Principal Accounting Officer) Date: November 5, 1996 18 EX-2.1 2 AGREEMENT/PLAN OF REORGANIZATION DATED 5/31/96 1 EXHIBIT 2.1 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG ADAPTEC, INC., COGENT DATA TECHNOLOGIES, INC. CDT ACQUISITION CORP. AND CERTAIN SHAREHOLDERS OF COGENT DATA TECHNOLOGIES, INC. May 31, 1996 2 TABLE OF CONTENTS
PAGE ---- 1 . Certain Definitions ............................................. 1 2. The Merger ...................................................... 3 2.1 Merger; Effective Time of the Merger .................... 3 2.2 Closing ................................................. 3 2.3 Effect of the Merger .................................... 3 2.4 Tax-Free Reorganization; Pooling of Interests ........... 4 3. Effect of Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates .......................... 4 3.1 Exchange of Stock ....................................... 4 3.2 Dissenters'Rights ....................................... 5 3.3 Fractional Shares ....................................... 5 3.4 Exchange of Certificates ................................ 6 3.5 Taking of Necessary Action; Further Action .............. 7 3.6 Escrow Agreement ........................................ 7 4. Representations and Warranties of Cogent ........................ 7 4.1 Organization, Qualification, and Corporate Power ........ 7 4.2 Authorization ........................................... 8 4.3 Capitalization .......................................... 8 4.4 Noncontravention ........................................ 8 4.5 Fees .................................................... 9 4.6 Financial Statements .................................... 9 4.7 Subsidiaries ............................................ 9 4.8 Title to Assets ......................................... 9 4.9 Events Subsequent to Most Recent Fiscal Year End ........ 9 4.10 Undisclosed Liabilities ................................. 12 4.11 Legal Compliance ........................................ 12 4.12 Tax Matters ............................................. 12 4.13 Properties . ............................................ 13 4.14 Intellectual Property ................................... 14 4.15 Tangible Assets ......................................... 15 4.16 Inventory ............................................... 15 4.17 Contracts ............................................... 16 4.18 Notes and Accounts Receivable ........................... 17 4.19 Power of Attorney ....................................... 17 4.20 Insurance ............................................... 18 4.21 Litigation .............................................. 18
-i- 3 TABLE OF CONTENTS (Continued)
PAGE ---- 4.22 Product Warranty ........................................ 18 4.23 Product Liability ....................................... 18 4.24 Employees ............................................... 18 4.25 Employee Benefits ....................................... 19 4.26 Guaranties .............................................. 21 4.27 Environment, Health, and Safety ......................... 21 4.28 Certain Business Relationships With Cogent .............. 22 4.29 Fun Disclosure .......................................... 22 4.30 Information Supplied .................................... 23 4.31 Accounting Matters ...................................... 23 5. Representation of the Majority Shareholders ..................... 23 6. Representations and Warranties of Adaptec and Acquisition Sub ... 23 6.1 Organization of Adaptec ................................. 23 6.2 Capitalization .......................................... 23 6.3 Authorization ........................................... 24 6.4 Noncontravention ........................................ 24 6.5 SEC Filings; Financial Statements ....................... 25 6.6 No Undisclosed Liabilities .............................. 25 6.7 Absence of Certain Changes or Events .................... 25 6.8 Absence of Litigation ................................... 26 6.9 Information Supplied .................................... 26 6.10 Brokers' Fees ........................................... 26 6.11 Full Disclosure ......................................... 26 7. Conduct and Transactions Prior to Effective Time; Additional Agreements ........................................... 26 7.1 General ................................................. 26 7.2 Notices and Consents .................................... 26 7.3 Operation of Business ................................... 27 7.4 Preservation of Business ................................ 27 7.5 Access to Information ................................... 27 7.6 Notice of Developments .................................. 27 7.7 Best Efforts ............................................ 27 7.8 Employment Agreements ................................... 27 7.9 Preparation of S-4 and the Proxy Statement; Other Filings 28 7.10 Shareholder Approval .................................... 28 7.11 Nasdaq National Market .................................. 29 7.12 Affiliates .............................................. 29
-ii- 4 TABLE OF CONTENTS (Continued)
PAGE ---- 7.13 Pooling Accounting ................................................ 29 7.14 Exclusivity ....................................................... 29 7.15 Post-Closing Cooperation .......................................... 29 7.16 Litigation Support ................................................ 29 7.17 Transition ........................................................ 30 7.18 Confidentiality ................................................... 30 7.19 Cogent Employees .................................................. 30 8. Conditions to Obligation to Close ........................................ 30 8.1 Conditions to Each Party's Obligation to Effect the Merger ........ 30 8.2 Conditions to Adaptec's Obligation to Close ....................... 31 8.3 Conditions to Cogent's Obligation ................................. 33 9. Survival of Representations, Warranties and Covenants; Indemnification ... 34 9.1 Survival .......................................................... 34 9.2 Indemnification Provisions for Benefit of Adaptec ................. 34 9.3 Procedure for Indemnification Claims .............................. 34 9.4 Exclusivity of Remedy ............................................. 35 10. Termination .............................................................. 35 10.1 Termination of the Agreement ...................................... 35 10.2 Effect of Termination ............................................. 35 11. Miscellaneous ............................................................ 35 11.1 Press Releases and Public Announcements ........................... 36 11.2 No Third-Party Beneficiaries ...................................... 36 11.3 Entire Agreement .................................................. 36 11.4 Succession and Assignment ......................................... 36 11.5 Counterparts ...................................................... 36 11.6 Headings .......................................................... 36 11.7 Notices ........................................................... 36 11.8 Governing Law ..................................................... 38 11.9 Forum Selection; Consent to Jurisdiction .......................... 38 11.10 Amendments and Waivers ............................................ 38 11.11 Severability ...................................................... 38 11.12 Expenses .......................................................... 38 11.13 Construction ...................................................... 38
-iii- 5 TABLE OF CONTENTS (Continued)
PAGE ---- 11.14 Incorporation of Exhibits and Schedules ........ 38 11.15 Shareholders' Representative ................... 38 11.16 Attorneys' Fees ................................ 39 12. Location of Definitions ............................... 39 EXHIBITS Exhibit 3.6 Escrow Agreement Exhibit 4 Cogent Disclosure Schedule Exhibit 6 Adaptec Disclosure Schedule Exhibit 7.8(a) List of Key Employees Exhibit 7.8(b) Employment Agreement Exhibit 7.12 Affiliate Agreement Exhibit 8.2(m) General Release
-iv- 6 AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization (the "Agreement") is entered into as of May 31, 1996, by and among ADAPTEC, INC., a California corporation ("Adaptec"), COGENT DATA TECHNOLOGIES, INC., a Washington corporation ("Cogent"), CDT ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of Adaptec ("Acquisition Sub"), and Charles Anderson, Deanna Anderson, Alan Bellanca, Richard Rome, Nash Gubelman and Frank Foster (the "Majority Shareholders"). Adaptec, Cogent, Acquisition Sub and the Majority Shareholders are sometimes referred to herein individually as a "Party" and collectively as the "Parties." RECITALS A. Pursuant to the Agreement and Plan of Merger in the form attached hereto as Exhibit 2.1 providing for the merger of Acquisition Sub into Cogent pursuant to the Washington Business Corporation Act (the "WBCA" the shares of Common Stock of Cogent issued and outstanding immediately prior to the effective time of the Merger will be converted into shares of Common Stock of Adaptec. B. The Parties desire to enter into this Agreement for the purpose of setting forth certain representations, warranties and covenants made by each to the other as an inducement to the execution and delivery of this Agreement, and to serve as conditions precedent to the consummation of the merger of Acquisition Sub into Cogent. C. The respective Boards of Directors of Adaptec, Cogent and Acquisition Sub have approved and adopted this Agreement, and the agreement is intended to be a plan of reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended; D. For accounting purposes, it is intended that the transaction be accounted for as a pooling of interests under United States generally accepted accounting principles. NOW, THEREFORE, in consideration of these premises and of the mutual agreements, representations, warranties and covenants herein contained, the parties hereto do hereby agree as follows: AGREEMENT 1. Certain Definitions. As used in this Agreement the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa). Certain other terms are defined in the text of this Agreement, the location of which is set forth in Section 11 hereof. "Affiliate" of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. 7 "Business Condition" means the current business, financial condition, results of operations and assets of such corporate entity. "Confidential Information" means any information concerning the business and affairs of Cogent or its subsidiaries that is designated by Cogent as confidential except for information which (i) was known to, or had been (or was in the process of being) independently developed by, Adaptec or an Affiliate of Adaptec prior to the receipt thereof from Cogent; (ii) was at the time of disclosure by Cogent a matter of public knowledge through no fault of Adaptec or an Affiliate of Adaptec; or (iii) was or hereafter is obtained by Adaptec or an Affiliate of Adaptec from a third party under no duty of confidentiality to Cogent or it subsidiaries. "Employee Benefit Plan" means any (a) nonqualified deferred compensation, retirement plan, severance plan or similar plan or arrangement; (b) Employee Pension Benefit Plan; (c) Employee Welfare Benefit Plan; (d) Multiemployer Plan; and (e) any other nonqualified plan providing welfare benefits, including but not limited to medical, dental, life insurance and disability benefits. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec, 3(l). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Gross Negligence" consists of an intentional act, or the failure to perform a duty, with reckless disregard for the consequences of such act or failure. "Intellectual Property" means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, drawings, specifications, customer and supplier lists, pricing and cost information, financial information, and business and marketing plans and proposals), (f) all computer software (including data and related documentation), (g) all other proprietary rights, and (h) all copies and tangible embodiments thereof (in whatever form or medium). "Material Adverse Effect" on any corporation shall mean a material adverse effect on the Business Condition of such corporation. "Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37) and Code Sec. 414(f). -2- 8 "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for taxes not yet due and payable, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. 2. The Merger. 2.1 Merger; Effective Time of the Merger. Subject to the terms and conditions of this Agreement, Acquisition Sub will be merged with and into Cogent (the "Merger") in accordance with the WBCA and the Delaware General Corporation Law (the "DGCL"). In accordance with the provisions of this Agreement, Articles of Merger in such form as is required by, and executed in accordance with, the WBCA, shall be filed with the Washington Secretary of State and the Delaware Secretary of State in accordance with the WBCA and the DGCL on the Closing Date (as defined in Section 2.2) and each issued and outstanding share of Common Stock of Cogent ("Cogent Common Stock"), shall be converted into shares of Common Stock, $.001 par value, of Adaptec (" Adaptec Common Stock") in the manner contemplated by Section 3. The Merger shall become effective at the time of the filing of such Articles of Merger with the Washington Secretary of State (the date of such filing being hereinafter referred to as the "Effective Date of the Merger" and the time of such filing being hereinafter referred to as the "Effective Time of the Merger"). 2.2 Closing. The closing of the Merger (the "Closing") will take place as soon as practicable on the first business day after satisfaction or waiver of the latest to occur of the conditions set forth in Section 7 (the "Closing Date"), at the offices of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304-1050, unless a different date or place is agreed to by the Parties. 2.3 Effect of the Merger. At the Effective Time of the Merger, (i) the separate existence of Acquisition Sub shall cease and Acquisition Sub shall be merged with and into Cogent (Cogent and Acquisition Sub are sometimes referred to herein as the "Constituent Corporations" and Cogent after the Merger is sometimes referred to herein as the "Surviving Corporation"), (ii) the Articles of Incorporation of Cogent shall be the Articles of Incorporation of the Surviving Corporation, (iii) the Bylaws of Acquisition Sub shall be the Bylaws of the Surviving Corporation, (iv) the directors of Acquisition Sub shall be the directors of the Surviving Corporation, (v) the officers of Acquisition Sub shall be the officers of the Surviving Corporation and (vi) the Merger shall, from and after the Effective Time of the Merger, have all the effects provided by applicable law. -3- 9 2.4 Tax-Free Reorganization; Pooling of Interests. The Merger is intended to qualify as a tax free reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and to be accounted for as a pooling of interests pursuant to Opinion No. 16 of the Accounting Principles Board. 3. Effect of Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates. 3.1 Exchange of Stock. As of the Effective Time of the Merger, each share of Cogent Common Stock that is issued and outstanding immediately prior to the Effective Time of the Merger (other than shares, if any, held by persons exercising dissenters' rights in accordance with Chapter 23B.13 of the WBCA ("Dissenting Shares") as provided for in Section 3.2 below), shall, by virtue of the Merger and without any action on the part of the Cogent shareholders, be converted into the right to receive, subject to the provisions of the Escrow Agreement, that number of shares of Adaptec Common Stock as is determined in accordance with the formula set forth below. The number of shares of Adaptec Common Stock into which each share of Cogent Common Stock is convertible as determined under the formula set forth below is hereinafter referred to as the "Exchange Ratio". A. Unless B or C applies, the Exchange Ratio shall be: PP/APS = ER ------ OS B. If the Average Price - Closing is greater than 1.05 multiplied by the Average Price at Signing (APC>1.05 x APS) then the Exchange Ratio shall be computed as: PP x LO5/APC = ER ------------ OS C. If Average Price - Closing is less than 0.95 multiplied by the Average Price at Signing (APC<0.95 x APS) then the Exchange Ratio shall be computed as: PP x 0.95/APC = ER ------------- OS where: ER = Exchange Ratio PP = $68,763,558 minus any expenses payable by the shareholders of Cogent pursuant to Section 10.12 hereof -4- 10 APS = Average of the closing prices of the Adaptec Common Stock as reported on the NASDAQ National Market for the five trading days prior to the date of execution of this Agreement (the "Average Price at Signing"). APC = Average of the closing prices of the Adaptec Common Stock as reported on the NASDAQ National Market for the five trading days prior to the Closing Date (the "Average Price at Closing"). OS = The total number of shares of Cogent Common Stock that are issued and outstanding immediately prior to the Effective Time of the Merger. 3.2 Dissenters' Rights. If holders of Cogent Common Stock are entitled to dissenters' rights at the Effective Time of the Merger under Chapter 23B.13 of the WBCA, the shares as to which dissenters' rights are available ("Dissenting Shares") shall not be converted into Adaptec Common Stock on or after the Effective Time of the Merger, but shall instead be converted into the right to receive from the Surviving Corporation such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to the WBCA. Each holder of Dissenting Shares (a "Dissenting Shareholder") who, pursuant to the provisions of Chapter 23B.13 of the WBCA, becomes entitled to payment of the value of shares of Cogent Common Stock held by such Dissenting Shareholder shall receive payment therefor (but only after the value therefor shall have been agreed upon or finally determined pursuant to such provisions). In the event of the legal obligation, after the Effective Time of the Merger, to deliver shares of Adaptec Common Stock to any Dissenting Shareholder who shall have failed to make an effective demand for appraisal or shall have lost his status as a Dissenting Shareholder, the Surviving Corporation shall issue and deliver, upon surrender by such Dissenting Shareholder of his certificate or certificates representing shares of Cogent Common Stock, the shares of Adaptec Common Stock to which such Dissenting Shareholder is then entitled under this Section 3.2 and Chapter 23B.13 of the WBCA. The Surviving Corporation will pay all sums due to holders of Dissenting Shares on account of such shares. 3.3 Fractional Shares. No fractional share of Adaptec Common Stock shall be issued in the Merger. In lieu thereof, each holder of shares of Cogent Common Stock who would otherwise be entitled to receive a fraction of a share of Adaptec Common Stock shall receive from Adaptec an amount of cash (rounded to the nearest whole cent) equal to the product of the fraction of a share of Adaptec Common Stock to which such holder would otherwise be entitled, multiplied by the per share market value of Adaptec Common Stock (based on the closing price of Adaptec Common Stock as reported on the Nasdaq National Market on the Effective Date of the Merger). For the purpose of determining fractional shares, all shares of Adaptec Common Stock to be issued to any Cogent shareholder shall be aggregated. -5- 11 3.4 Exchange of Certificates. (a) Exchange Agent. Prior to the Closing Date, Adaptec shall appoint Chemical Trust Company of California to act as the exchange agent (the "Exchange Agent") in the Merger. (b) Adaptec to Provide Adaptec Common Stock. Promptly after the Effective Date of the Merger (but in no event later than ten business days thereafter), Adaptec shall make available for exchange in accordance with this Section 3, through such reasonable procedures as Adaptec may adopt, the shares of Adaptec Common Stock issuable pursuant to Section 3.1 in exchange for outstanding shares of Cogent Common Stock. (c) Exchange Procedures. Within ten days after the Effective Date of the Merger, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Date of the Merger represented outstanding shares of Cogent Common Stock (the "Certificates") whose shares are being converted into Adaptec Common Stock pursuant to Section 3.1 hereof, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and which shall be in such form and have such other provisions as Adaptec may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for Adaptec Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Adaptec with the reasonable concurrence of the former Cogent shareholders, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor the number of shares of Adaptec Common Stock to which the holder of Cogent Common Stock is entitled pursuant to Section 3.1 hereof. The Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Cogent Common Stock which is not registered on the transfer records of Cogent, the appropriate number of shares of Adaptec Common Stock may be delivered to a transferee if the Certificate representing such Cogent Common Stock is presented to the Exchange Agent and accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. From and after the Effective Date of the Merger, until surrendered as contemplated by this Section 3.4, each Certificate shall be deemed for all corporate purposes to evidence the number of shares of Adaptec Common Stock into which the shares of Cogent Common Stock represented by such Certificate have been converted and shall have the rights with respect thereto as provided by the California General Corporation Law. (d) No Further Ownership Rights in Capital Stock of Cogent. All Adaptec Common Stock delivered upon the surrender for exchange of shares of Cogent Common Stock in accordance with the terms hereof shall be deemed to have been delivered in full satisfaction of all rights pertaining to such Cogent Common Stock. There shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of Cogent Common Stock which were outstanding immediately prior to the Effective Date of the Merger. If, after the Effective Date of the Merger, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled -6- 12 and exchanged as provided in this Section 3.4, provided that the presenting holder is listed on Cogent's shareholder list as a holder of Cogent Common Stock. 3.5 Taking of Necessary Action; Further Action. Adaptec, Cogent and Acquisition Sub shall take all such action as may be necessary or appropriate in order to effect the Merger as promptly as possible provided that nothing herein shall obligate any Majority Shareholder to vote in favor of the Merger. If, at any time after the Effective Date of the Merger, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of either Cogent or Acquisition Sub, the officers and directors of such corporation are fully authorized in the name of the corporation or otherwise to take, and shall take, all such action. 3.6 Escrow Agreement. At the Closing, the Majority Shareholders and Adaptec shall execute and deliver an escrow agreement (the "Escrow Agreement"), substantially in the form attached hereto as Exhibit 3.6 Pursuant to the Escrow Agreement, the Escrow Amount shall be deducted, pro rata, from the number of shares of Adaptec Common Stock otherwise issuable to the Majority Shareholders and shall be placed in escrow for the purpose of securing the indemnity obligations set forth in Section 9 hereof. As used herein "Escrow Amount" shall mean 10% of the shares of Adaptec Common Stock (rounded to the nearest whole share) issuable to the Majority Shareholders in the Merger pursuant to Section 3.1. 4. Representations and Warranties of Cogent. Cogent hereby represents and warrants, to Adaptec and Acquisition Sub that the statements contained in this Section 4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4), except as set forth in the disclosure schedule delivered by Cogent to Adaptec on the date hereof (and initialed by Adaptec), a copy of which is attached hereto as Exhibit 4 (referred to herein as the "Cogent Disclosure Schedule") and except for events occurring in the Ordinary Course of Business of Cogent between the date of this Agreement and the Closing Date, which events are not material individually or in the aggregate, do not violate any of the covenants or agreements of Cogent, and are disclosed to Adaptec by means of an updated Cogent Disclosure Schedule not less than two days prior to the Closing. The Cogent Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 4. 4.1 Organization, Qualification, and Corporate Power. Cogent is a corporation duly organized and validly existing under the laws of the jurisdiction of the State of Washington. Cogent is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. Cogent has full corporate power and authority, and has all necessary licenses and permits, to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. Section 4.1 of the Cogent Disclosure Schedule lists the directors and officers of Cogent. The operations now being conducted by Cogent have not been conducted under any other name during the past five (5) years. -7- 13 4.2 Authorization. Cogent has full power and authority to execute and deliver this Agreement, and, subject to receipt of the requisite approvals of its shareholders, to consummate the transactions contemplated hereunder and to perform its obligations hereunder and except as set forth on Section 4.2 of the Cogent Disclosure Schedule no other proceedings on the part of Cogent are necessary to authorize the execution, delivery and performance of this Agreement. This Agreement constitutes the valid and legally binding obligation of Cogent, enforceable against Cogent in accordance with its terms and conditions. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency, commission, regulatory authority or other governmental authority or instrumentality, domestic or foreign, is required by or with respect to Cogent in connection with the execution and delivery of this Agreement or the Articles of Merger by Cogent or by consummation by Cogent of the transactions contemplated hereby or thereby, except for (i) the filing of a premerger notification report by Cogent under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the distribution of the registration statement/proxy statement relating to the Shareholders' Meeting (the "Registration Statement/Proxy Statement") and the obtaining of the approval of the Merger by Cogent's shareholders, and (iii) the filing of the Articles of Merger with the Secretary of State of the State of Washington and the Secretary of the State of the State of Delaware and appropriate documents with the relevant authorities of other states in which Cogent is qualified to do business. 4.3 Capitalization. (a) Capital Stock. The entire authorized capital stock of Cogent consists of 10,000,000 shares of Common Stock without par value, 2,242,793 of which are issued and outstanding, and 5,000,000 shares of Preferred Stock, none of which are issued and outstanding. All of the issued and outstanding shares of capital stock have been duly authorized, are validly issued, fully paid, and non-assessable, and are held of record by the respective shareholders as set forth in Section 4.3(a) of the Cogent Disclosure Schedule. All of the outstanding shares of capital stock have been offered, issued and sold by Cogent in compliance with applicable Federal and state securities laws. (b) No Other Rights or Agreements. Section 4.3(b) of the Cogent Disclosure Schedule lists all of the holders of options, warrants, purchase rights, subscription rights, conversion rights, exchange rights and other rights that could require Cogent to issue, sell or otherwise cause to become outstanding any of its capital stock (the "Stock Rights"), and if determinable, the number of shares of Cogent Common Stock subject to such Stock Rights. Except as set forth in Section 4.3(b) of the Cogent Disclosure Schedule, there are no other outstanding or authorized Stock Rights. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Cogent. Except as set forth in Section 4.3(b) of the Cogent Disclosure Schedule, there are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of Cogent. 4.4 Noncontravention. Neither the execution and the delivery of this Agreement nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Cogent is subject or any provision of its Articles -8- 14 of Incorporation or bylaws, or (B) except as set forth in Section 4.4 of the Cogent Disclosure Schedule, (i) conflict with, (ii) result in a breach of, (iii) constitute a default under, (iv) result in the acceleration of, (v) create in any party the right to accelerate, terminate, modify, or cancel, or (vi) require any notice under, any agreement, contract, lease, license, instrument, franchise permit or other arrangement to which Cogent is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). 4.5 Fees. Except for the fee to be paid to Broadview Associates L.P., Cogent has no liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement. 4.6 Financial Statements. Section 4.6 of the Cogent Disclosure Schedule contains an audited balance sheet and statement of operations as of and for the fiscal year ended March 31, 1995 and an unaudited balance sheet and statement of operations as of and for the fiscal year ended March 31, 1996 (the "Most Recent Fiscal Year End") for Cogent (collectively the "Financial Statements"). The Financial Statements (including the notes thereto) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except that the unaudited Financial Statements lack footnotes and certain other presentation items) throughout the periods covered thereby and present fairly the financial condition of Cogent as of such dates and the consolidated results of operations of Cogent as for such periods. The books of account of Cogent reflect as of the dates shown thereon substantially all items of income and expenses, and all assets, liabilities and accruals of Cogent required to be reflected therein, in accordance with generally accepted accounting principles consistently applied. 4.7 Subsidiaries. Cogent has no subsidiaries. 4.8 Title to Assets. Except as set forth in Section 4.8 of the Cogent Disclosure Schedule, Cogent has good and marketable title to, or a valid leasehold interest in, the properties and assets (including, without limitation, all Intellectual Property) used by it, located on its premises, or shown on the balance sheet of Cogent as of March 31, 1996 (the "Most Recent Balance Sheet") or acquired after the date thereof, free and clear of all Security Interests, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet. No Person other than Cogent will own at the time of the Closing any assets or properties currently utilized in or reasonably necessary to the operations or business of Cogent or situated on any of the premises of Cogent. There are no existing contracts, agreements, commitments or arrangements with any Person to acquire any of the assets or properties of Cogent (or any interest therein) except for this Agreement and those contracts entered into during the Ordinary Course of Business for the sale of products and services to customers of Cogent. 4.9 Events Subsequent to Most Recent Financial Year End. Since the Most Recent Fiscal Year End, there has not been any material adverse change in the Business Condition of Cogent. Without limiting the generality or the foregoing, since that date: -9- 15 (a) Cogent has not sold, leased, transferred, or assigned any assets or properties, tangible or intangible, outside the Ordinary Course of Business; (b) except for those agreements, contracts, leases and commitments identified in Section 4.17 of the Cogent Disclosure Schedule, Cogent has not entered into, assumed or become bound under or obligated by any agreement, contract, lease or commitment (collectively a "Cogent Agreement") or extended or modified the terms of any Cogent Agreement which (i) involves the payment of greater than $50,000 per annum or which extends for more than one (1) year, (ii) involves any payment or obligation to any Affilliate of Cogent other than in the Ordinary Course of Business, (iii) involves the sale of any assets material to the business and operations of Cogent, (iv) involves any OEM relationship, or (v) involves any exclusive or extraordinary license of Cogent's technology; (c) Except as set forth on Section 4.9(e) of the Cogent Disclosure Schedule, no party (including Cogent) has accelerated, terminated, made modifications to, or canceled any agreement, contract, lease, or license to which Cogent is a party or by which it is bound and Cogent has not modified, canceled or waived or settled any debts or claims held by it, outside the Ordinary Course of Business, or waived or settled any rights or claims of a substantial value, whether or not in the Ordinary Course of Business; (d) none of the assets of Cogent, tangible or intangible, has become subject to any Security Interest; (e) Cogent has not made any capital expenditures except in the Ordinary Course of Business and not exceeding $50,000 in the aggregate of all such capital expenditures; (f) Except as set forth on Section 4.9(f) of the Cogent Disclosure Schedule, Cogent has not made any capital investment in, or any loan to, any other Person in excess of $10,000; (g) Except as set forth on Section 4.9(g) of the Cogent Disclosure Schedule, Cogent has not created, incurred, assumed, prepaid or guaranteed any indebtedness for borrowed money and capitalized lease obligations, or extended or modified any existing indebtedness; (h) Except in the Ordinary Course of Business, Cogent has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; (i) there has been no change made or authorized in the articles of incorporation or bylaws of Cogent; (j) Except as set forth on Section 4.9(j) of the Cogent Disclosure Schedule, Cogent has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including, upon conversion, exchange, or exercise) any of its capital stock; -10- 16 (k) Cogent has not declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock; (1) Cogent has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property in excess of $50,000 in the aggregate of all such damage, destruction and losses; (m) Except as set forth on Section 4.9(m) of the Cogent Disclosure Schedule, Cogent has not suffered any repeated, recurring or prolonged shortage, cessation or interruption of inventory shipments, supplies or utility services; (n) Except as set forth on Section 4.9(n) of the Cogent Disclosure Schedule, Cogent has not entered into any other transaction with, or paid any bonuses in excess of an aggregate of $10,000 to, any of its Affiliates, directors, officers, or employees, and, in any event, any such transaction was on fair and reasonable terms no less favorable to Cogent than would be obtained in a comparable arm's length transaction with a Person which is not such an Affiliate, director, officer or employee thereof; (o) Except as set forth on Section 4.9(o) of the Cogent Disclosure Schedule, Cogent has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (p) Except as set forth on Section 4.9(p) of the Cogent Disclosure Schedule, Cogent has not granted any increase in the base compensation of any of its directors or officers, or, except in the Ordinary Course of Business, any of its employees; (q) Except as set forth on Section 4.9(q) of the Cogent Disclosure Schedule, Cogent has not adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, or employees (or taken any such action with respect to any other Employee Benefit Plan); (r) Cogent has not made any other change in employment terms for any of its directors, officers, or employees outside the Ordinary Course of Business; (s) Except as set forth on Section 4.9(s) of the Cogent Disclosure Schedule, Cogent has not suffered any adverse change or any threat of any adverse change in its relations with, or any loss or threat of loss of, any of its major customers, distributors or dealers; (t) Except as set forth on Section 4.9(t) of the Cogent Disclosure Schedule, Cogent has not suffered any adverse change or any threat of any adverse change in its relations with, or any loss or threat of loss of, any of it major suppliers; -11- 17 (u) Cogent has not received notice or had knowledge of any actual or threatened labor trouble or strike, or any other occurrence, event or condition of a similar character; (v) Cogent has not changed any of the accounting principles followed by it or the method of applying such principles; (w) Cogent has not made a change in any of its banking or safe deposit arrangements; (x) Except for the execution of this Agreement, Cogent has not entered into any transaction other than in the Ordinary Course of Business; and (y) Cogent has not committed to any of the foregoing. 4.10 Undisclosed Liabilities. Cogent has no liability (whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any liability for taxes) of a character which, under GAAP, should be accrued, shown or disclosed on a balance sheet of Cogent, except for (i) liabilities set forth on the Most Recent Balance Sheet, (ii) liabilities which have arisen after the Most Recent Fiscal Year End in the Ordinary Course of Business, and (iii) liabilities arising out of the transactions contemplated by this Agreement. 4.11 Legal Compliance. Cogent has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof). No action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, notice or inquiry has been filed or commenced against, or received by, any governmental body alleging any failure to so comply. The licenses, permits, approvals, registrations, qualifications, certificates and other governmental authorizations that are listed on Section 4.11 of the Cogent Disclosure Schedule are the only governmental authorizations that are necessary for the operations of Cogent as they are presently conducted. 4.12 Tax Matters (a) For purposes of this Agreement, "Taxes" means all federal, state, municipal, local or foreign income, gross receipts, windfall profits, severance, property, production, sales, use, value added, license, excise, franchise, employment, withholding, capital stock, levies, imposts, duties, transfer and registration fees or similar taxes or charges imposed on the income, payroll, properties or operations of Cogent, together with any interest, additions or penalties, deficiencies or assessments with respect thereto and any interest in respect of such additions or penalties. (b) Cogent has filed all reports and returns with respect to any Taxes ("Tax Returns") that it was required to file. All such Tax Returns were correct and complete in all respects and no such Tax Returns are currently the subject of audit. Except as set forth in Section 4.12 (b) -12- 18 of the Cogent Disclosure Schedule. All Taxes owed by Cogent (whether or not shown on any Tax Return) were paid in full when due or are being contested in good faith and are supported by adequate reserves on the Most Recent Financial Statements. Cogent has provided adequate reserves on its Financial Statements for the payment of any taxes accrued but not yet due and payable. Cogent is not currently the beneficiary of any extension of time within which to file any Tax Return, and Cogent has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. (c) There is no dispute or claim concerning any Tax liability of Cogent either (A) claimed of raised by any authority in writing or (B) based upon personal contact with any agent of such authority. There are no tax liens of any kind upon any property or assets of Cogent, except for inchoate liens for taxes not yet due and payable. (d) Cogent has not filed a consent under Sec. 341(f) of the Internal Revenue Code of 1986, as amended (the "Code") concerning collapsible corporations. Cogent has not made any payments, is not obligated to make any payments, and is not a party to any agreement that under any circumstances could obligate it to make any payments as a result of the consummation of the Merger that will not be deductible under Code Sec. 280G. Cogent has not been a United States real property holding corporation within the meaning of Code Sec. 897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii). Cogent is not a party to any tax allocation or sharing agreement. Cogent (A) has not been a member of any affiliated group within the meaning of Code Sec. 1504 or any similar group defined under a similar provision of state, local, or foreign law (an "Affiliated Group") filing a consolidated federal Income Tax Return (other than a group the common parent of which was Cogent) and (B) has no any liability for the taxes of any Person (other than any of Cogent and its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (e) The unpaid Taxes of Cogent (A) did not, as of the Most Recent Fiscal Period End, exceed by any amount the reserve for Tax liability (rather than any reserve for deferred taxes established to reflect timing differences between book and tax income) set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (B) will not exceed by any material amount that reserve as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of Cogent in filing its Tax Returns. 4.13 Properties. (a) Cogent owns no real property. (b) Section 4.13 of the Cogent Disclosure Schedule lists and describes briefly all real property leased or subleased to Cogent. Cogent has delivered to Adaptec correct and complete copies of the leases and subleases listed in Section 4.13 of The Cogent Disclosure Schedule (as amended to date), and with respect to each lease and sublease listed in Section 4.13 of the Cogent Disclosure Schedule to the knowledge of Cogent, except as set forth on Section 4.13 of the Cogent Disclosure Schedule: -13- 19 (i) the lease or sublease is legal, valid, binding, enforceable, and in full force and effect in all respects; (ii) no party to the lease or sublease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; (iii) no party to the lease or sublease has repudiated any provision thereof, (iv) there are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease: (v) Cogent has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; and 4.14 Intellectual Property. (a) Cogent has not interfered with, infringed upon, misappropriated or violated any Intellectual Property rights of third parties in any respect, and except as set forth on Section 4.14(a) of the Cogent Disclosure Schedule. Cogent has not received since its inception any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that any of Cogent must license or refrain from using any Intellectual Property rights of any third party). To the best of Cogent's knowledge, no third party has interfered with, infringed upon, misappropriated, or violated any Intellectual Property rights of Cogent. (b) Section 4.14(b) of the Cogent Disclosure Schedule identifies each patent or registration which has been issued to Cogent with respect to any of the Intellectual Property used in Cogent's business, identifies each pending patent application or application for registration which Cogent has made with respect to any of the Intellectual Property used in Cogent's business, and identifies each license, agreement, or other permission which Cogent has granted to any third party with respect to any of the Intellectual Property used in Cogent's business (together with any exceptions). Cogent has delivered to Adaptec correct and complete copies of all such patents, registrations, applications, licenses, agreements, and permissions (as amended to date). Section 4.14(b)of the Cogent Disclosure Schedule also identifies (i) each trade name or unregistered trademark used by Cogent in connection with any of its businesses and (ii) each unregistered copyright owned by Cogent with respect to Intellectual Property used in Cogent's business. With respect to each item of Intellectual Property required to be identified in Section 4.14(b) of the Cogent Disclosure Schedule: (i) Cogent possesses, or will possess prior to the Closing, all right, title, and interest in and to the item, free and clear of any Security Interest, license, or other restriction; -14- 20 (ii) the item is legal and valid and in full force and effect and is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge; (iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand is pending or threatened in writing which challenges the legality, validity, enforceability, use or ownership of the item; and (iv) Except as set forth in the Cogent Disclosure Schedule, Cogent has no obligation to indemnify any Person for or against any interference, infringement, misappropriation, or other conflict with respect to the item. (c) Section 4.14(c) of the Cogent Disclosure Schedule identifies each item of Intellectual Property that any third party owns and that Cogent uses pursuant to license, sublicense, agreement, or permission. Cogent has delivered to Adaptec correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each item of Intellectual Property required to be identified in Section 4.14(c) of the Cogent Disclosure Schedule: (i) the license, sublicense, agreement or permission covering the item is, to the knowledge of Cogent, legal, valid, binding and enforceable, and in full force and effect in all respects; (ii) no party to the license, sublicense, agreement, or permission is, to the knowledge of Cogent, in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification or acceleration thereunder; (iii) no party to the license, sublicense, agreement, or permission has repudiated any provision thereof; and (iv) Cogent has not granted any sublicense or similar right with respect to the license, sublicense, agreement, or permission. 4.15 Tangible Assets. The buildings, machinery, equipment, and other tangible assets that Cogent owns and leases are free from material defects, have been maintained in accordance with normal industry practice, and are in good operating condition and repair (subject to normal wear and tear) and are usable in the Ordinary Course of Business, 4.16 Inventory. Except as set forth in Section 4.16 of the Cogent Disclosure Schedule, all of the inventory of Cogent, which consists of raw materials and supplies, manufactured and processed parts, work in process, and finished goods, is usable, merchantable and fit for the purpose for which it was procured or manufactured, and none of such inventory is obsolete, damaged, or defective, subject only to the reserve for inventory write down set forth on the face of the Most Recent Balance Sheet as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of Cogent. -15- 21 4.17 Contracts. Section 4.l7 of the Cogent Disclosure Schedule lists the following contracts, agreements, commitments and other arrangements currently in effect to which Cogent is a party or by which Cogent or any of its assets is bound: (a) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $12,000 per annum; (b) except for purchase orders issued in the Ordinary Course of Business, any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year or involves consideration in excess of $50,000; (c) any agreement for the purchase of supplies, components, products or services from single source suppliers, custom manufacturers or subcontractors the performance of which will extend over a period of more than one year or involves consideration in excess of $50,000; (d) any agreement concerning a partnership or joint venture; (e) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money or any capitalized lease obligation in excess of $50,000 or under which it has imposed a Security Interest on any of its assets, tangible or intangible; (f) any agreement concerning confidentiality, noncompetition or restraint of trade; (g) any agreement with any Cogent shareholder or any of such shareholder's Affiliates (other than Cogent) or with any Affiliate of Cogent; (h) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other plan or arrangement for the benefit of its current or former directors, officers, and employees; (i) any collective bargaining agreements; (j) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis; (k) any agreement under which Cogent has advanced or loaned any amount to any of its directors, officers, and employees; -16- 22 (l) any other agreement under which the consequences of a default or termination could have a Material Adverse Effect on Cogent; (m) any agreement with any original equipment manufacturer involving consideration in excess of $100,000; (n) any agreement pursuant to which Cogent is obligated to provide maintenance, support or training for its products; (o) any standard form agreement used by Cogent, including, but not limited to, any purchase order, statement of standard terms and conditions of sale, or employment offer letter; (p) any agreement pursuant to which any of Cogent's products is manufactured; and (q) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $50,000 or which is expected to continue for more than six months from the date hereof. Cogent has delivered to Adaptec a correct and complete copy of each written agreement listed in Section 4.17 of the Cogent Disclosure Schedule (as amended to date) and a written summary setting forth the terms and conditions of each oral agreement referred to in Section 4.17 of the Cogent Disclosure Schedule. Except as set forth on Section 4.17 of the Cogent Disclosure Schedule, with respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect in all respects in accordance with its terms; (B) no party is in breach or default, and no event has occurred, which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under the agreement; and (C) no party has repudiated any provision of the agreement; 4.18 Notes and Accounts Receivable. Except as set forth on Section 4.18 of the Cogent Disclosure Schedule all notes and accounts receivable of Cogent, all of which are reflected properly on the books and records of Cogent, are valid receivables (less cash discounts) subject to no setoffs, defenses or counterclaims, are current and collectible, and will be collected in accordance with their terms at their recorded amounts, subject only to the reserves for bad debts, warranty, and allowance for distributor returns set forth on the face of the Most Recent Balance Sheet as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of Cogent. 4.19 Power of Attorney. Except as set forth on Section 4.19 of the Cogent Disclosure Schedule, there are no outstanding powers of attorney executed on behalf of Cogent. -17- 23 4.20 Insurance. Cogent has delivered to Adaptec copies of each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) with respect to which Cogent is a party, a named insured, or otherwise the beneficiary of coverage. With respect to each such insurance policy: (A) the policy is legal, valid, binding, enforceable, and in full force and effect in all respects (and there has been no notice of cancellation or nonrenewal of the policy received), (B) neither Cogent nor any other party to the policy, is in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration, under the policy; (C) no party to the policy has repudiated any provision thereof, and (D) there has been no failure to give any notice or present any claim under the policy in due and timely fashion. Section 4.20 of the Cogent Disclosure Schedule describes any self-insurance arrangements presently maintained by Cogent. 4.21 Litigation. Section 4.21 of the Cogent Disclosure Schedule sets forth each instance in which Cogent (or any of its assets) (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is or has been within the last three years a party, or, to the knowledge of Cogent, is threatened to be made a party, to any action, suit, proceeding, hearing, arbitration, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. To the knowledge of Cogent, there are no facts or circumstances which would form the basis of any claim against Cogent. 4.22 Product Warranty. Substantially all of the products manufactured, sold, leased, and delivered by Cogent have conformed in all respects with all applicable contractual commitments and all express and implied warranties, and as disclosed in the Cogent Disclosure Schedule, Cogent has no liability (whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) for replacement or repair thereof or other damages in connection therewith, other than in the Ordinary Course of Business in an aggregate amount not exceeding $50,000. Substantially all of the products manufactured, sold, leased, and delivered by Cogent are subject to standard terms and conditions of sale or lease. Section 4.17(o) of the Cogent Disclosure Schedule includes copies of the standard terms and conditions of sale or lease for Cogent (containing applicable guaranty, warranty, and indemnity provisions). 4.23 Product Liability. To the best of Cogent's knowledge, Cogent has no liability (whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) arising out of any injury to individuals or property as a result of the ownership, possession, or use of any product manufactured, sold, leased, or delivered by Cogent. 4.24 Employees. Except as set forth on Section 4.24 of the Cogent Disclosure Schedule, no executive, key employee, or significant group of employees has advised any executive officer of Cogent that he, she or they plan to terminate employment with Cogent during the next 12 months. Cogent is not a party to or bound by any collective bargaining agreement, nor has it experienced any strike or grievance, claim of unfair labor practices, or other collective bargaining dispute within the -18- 24 past three years. Cogent has not committed any unfair labor practice. There is no organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of Cogent. 4.25 Employee Benefits. (a) Section 4.25 (a) of the Cogent Disclosure Schedule lists each Employee Benefit Plan that Cogent maintains or to which Cogent contributes or is obligated to contribute. (i) Each such Employee Benefit Plan (and each related trust, or fund established by Cogent) complies in form and in operation in all respects with their terms, the applicable requirements of ERISA, the Code, and other applicable laws. (ii) All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met in all respects with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. To the best of Cogent's knowledge, no event has occurred and no condition exists with respect to any Employee Benefit Plan that would subject Cogent to any tax under Code Sections 4972, 4976 or 4979 or to a fine under ERISA Sections 502(i) or 502(1). (iii) All contributions, premiums or other payments (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Employee Benefit Plan and all contributions, premiums or other payments for any period ending on or before the Closing Date which are not yet due shall been paid to each such Employee Benefit Plan or shall be accrued in accordance with the custom and practice of Cogent. (iv) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan and which is intended to qualify under Code Sec. 401 (a), has received a favorable determination letter from the Internal Revenue Service with respect to the qualification of the plan under Code Section 401 (a) and the exemption of any corresponding trust under Code Section 501, unless the Internal Revenue Service is deemed to have approved the form of such Plan under applicable IRS Revenue Procedures. A copy of such determination letters have been provided to Adaptec and nothing has occurred since the date of each such determination letter that would cause such Employee Pension Benefit Plan to lose its ability to rely on such letter. Each Employee Pension Benefit Plan has been restated to comply with the 1986 Tax Reform Act and subsequent applicable tax legislation to the extent required by governing tax law. A copy of any determination letters applicable to such restatement which have been received by Cogent has been provided to Adaptec. (v) Neither Cogent nor any other Person or entity under common control with Cogent within the meaning of Section 414(b), (c) or (m) of the Code and the regulations thereunder has now or at any previous time, maintained, established, sponsored, participated in, or -19- 25 contributed to, any Employee Pension Benefit Plan that is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code. No Employee Welfare Benefit Plan or other Employee Benefit Plan providing welfare benefits is funded with a trust or other funding vehicle, other than insurance policies or contracts with a health maintenance organization or similar health care delivery entity. (vi) Cogent has delivered to Adaptec correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, if any, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each maintained Employee Benefit Plan. The terms of any such documentation or other communication do not prohibit Adaptec from amending or terminating any such Employee Benefit Plan. (b) With respect to each Employee Benefit Plan that Cogent, and/or any controlled group of corporations within the meaning of Code Sec. 1563 (a "Controlled Group of Corporations") which includes Cogent, maintains or ever has maintained or to which any of them contributes, ever contributed, or ever has been required to contribute: (i) To the best of Cogent's knowledge, there have been no prohibited transactions within the meaning of ERISA Sec. 406 and Code Sec. 4975 with respect to any such Employee Benefit Plan. No fiduciary within the meaning of ERISA Sec. 3(21) (a "Fiduciary"), has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or threatened. (c) Except as disclosed in Section 4.25(c) of the Cogent Disclosure Schedule, Cogent does not maintain or contribute to, has never maintained or contributed to, and has never been required to contribute to, any Employee Welfare Benefit Plan or any other Employee Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980B or Part 6 of Subtitle B of Title I of ERISA). (d) There is no liability in connection with any Employee Benefit Plan that is not fully disclosed or provided for on the Most Recent Balance Sheet for which disclosure would be required under generally accepted accounting principles. (e) No Employee Benefit Plan or Cogent has any liability to any plan participant, beneficiary or other person by reason of the payment of benefits or the failure to pay benefits with respect to benefits under or in connection with any such Employee Benefit Plan, other than claims in the normal administration of such plans. -20- 26 4.26 Guaranties. Cogent is not a guarantor or otherwise responsible for any liability or obligation (including indebtedness) of any other Person. 4.27 Environment, Health, and Safety. (a) For purposes of this Agreement, the following terms have the following meanings: "Environmental, Health, and Safety Laws" means any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, plans, injunctions, judgments, decrees, requirements or rulings now or hereafter in effect, imposed by any governmental authority regulating, relating to, or imposing liability or standards of conduct relating to pollution or protection of the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), public health and safety, or employee health and safety, concerning any Hazardous Materials or Extremely Hazardous Substances, as such terms as defined herein, or otherwise regulated, under any Environmental, Health and Safety Laws. The term "Environmental, Health and Safety Laws" shall include, without limitation, the Clean Water Act (also known as the Federal Water Pollution Control Act), 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986, Public Law 99-4, 99, 100 Stat. 1613, the Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., and the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., all as amended, together with any amendments thereto, regulations promulgated thereunder and all substitutions thereof. "Extremely Hazardous Substance" means a substance on the list described in Section 302 (42 U.S.C. Section 11002(a)(2)) of the Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., as amended. "Hazardous Material" means any material or substance that, whether by its nature or use, is now or hereafter defined as a pollutant, dangerous substance, toxic substance, hazardous waste, hazardous material, hazardous substance or contaminant under any Environmental, Health and Safety Laws, or which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now or hereafter regulated under any Environmental, Health and Safety Laws, or which is or contains petroleum, gasoline, diesel fuel or other petroleum hydrocarbon product. (b) Each of Cogent and its predecessors and Affiliates (A) has complied with the Environmental, Health, and Safety Laws in all respects (and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, directive or notice has been filed or commenced against any of them alleging any such failure to comply), (B) has obtained and been in substantial compliance with all of the terms and conditions of all permits, licenses, certificates and -21- 27 other authorizations which are required under the Environmental, Health, and Safety Laws, and (C) has complied in all respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in the Environmental, Health, and Safety Laws. (c) Cogent has no liability (whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due) with respect to, and none of Cogent and its predecessors and Affiliates has handled or disposed of any Hazardous Materials or extremely Hazardous Substances, arranged for the disposal of any Hazardous Materials or Extremely Hazardous Substances, exposed any employee or other individual to any Hazardous Materials or Extremely Hazardous Substances, or owned or operated any property or facility in any manner that could give rise to any liability, for damage to any site, location, surface water, groundwater, land surface or subsurface strata, for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law. (d) No Extremely Hazardous Substances are currently, or have been, located at, on, in, under or about all properties and equipment used in the business of Cogent and its predecessors and Affiliates. (e) No Hazardous Materials are currently located at, on, in, under or about all properties and equipment used in the business of Cogent and its predecessors and Affiliates in a manner which violates any Environmental, Health and Safety Laws or which requires cleanup or corrective action of any kind under any Environmental, Health and Safety Laws. 4.28 Certain Business Relationships With Cogent. Neither the shareholders of Cogent nor any director or officer of Cogent, nor any member of their immediate families, nor any Affliate of any of the foregoing, owns, directly or indirectly, or has an ownership interest in (a) any business (corporate or otherwise) which is a party to, or in any property which is the subject of, any business arrangement or relationship of any kind with Cogent in excess of $2,000 per annum, or (b) any business (corporate or otherwise) which conducts the same business as, or a business similar to, that conducted by Cogent. 4.29 Full Disclosure. No representation or warranty in this Section 4 or in any document delivered by Cogent pursuant to the transactions contemplated by this Agreement, and no statement, list, certificate or instrument furnished to Adaptec pursuant hereto or in connection with this Agreement contains any untrue statement of a material fact, or omits or shall omit to state any fact necessary, in light of the circumstances under which it was made, to make any statement herein or therein not materially misleading. There is no fact, event or condition which Cogent has not disclosed to Adaptec in writing and which is having or is reasonably likely to have a Material Adverse Effect on Cogent. Except as specifically disclosed on the Cogent Disclosure Schedule, Cogent has delivered to Adaptec true, correct and complete copies of all documents, including all amendments, supplements and modifications thereof or waivers currently in effect thereunder, described in the Cogent Disclosure Schedule. -22- 28 4.30 Information Supplied. None of the information supplied or to be supplied by Cogent for inclusion in the Registration Statement on Form S-4 to be filed with the Securities and Exchange Commission (the "SEC") by Adaptec in connection with the issuance of the Adaptec Common Stock in or as a result of the Merger (the "S-4"), including the Proxy Statement included therein, at the date such information is supplied and at the time of the Shareholders' Meeting, contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading or will, in the case of the S-4 at the time the S-4 becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. 4.31 Accounting Matters. Neither Cogent nor any of its Affiliates, has taken or agreed to take any action that would adversely affect the ability of Adaptec to account for the business combination to be effected by the Merger as a pooling of interests. 5. Representation of the Majority Shareholders. Each of the Majority Shareholders represents and warrants to Adaptec that he or she is not aware, and has no reason to believe, that any of the representations and warranties of Cogent set forth in Section 4 is untrue or inaccurate. 6. Representations and Warranties of Adaptec and Acquisition Sub. Adaptec and Acquisition Sub jointly and severally represent and warrant to Cogent that the statements contained in this Section 6 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 6), except as set forth in the disclosure schedule delivered by Adaptec and Acquisition Sub to Cogent on the date hereof (and initialed by Adaptec, Acquisition Sub and Cogent), a copy of which is attached hereto as Exhibit 6 (referred to herein as the "Adaptec Disclosure Schedule") and except for events occurring in the Ordinary Course of Business of Adaptec and Acquisition Sub between the date of this Agreement and the Closing Date, which events are not material individually or in the aggregate, do not violate any of the covenants or agreements of Adaptec or Acquisition Sub, and are disclosed to Cogent by means of an updated Adaptec Disclosure Schedule not less than two days prior to the Closing. The Adaptec Disclosure Schedule will be arranged in paragraphs corresponding to the numbered paragraphs contained in this Section 6. 6.1 Organization of Adaptec. Each of Adaptec and Acquisition Sub is a corporation duly organized, validity existing, and in good standing under the laws of the States of California and Delaware, respectively. Each of Adaptec and Acquisition Sub is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. 6.2 Capitalization. (a) As of March 31, 1996, the authorized capital stock of Adaptec consisted of (i) 1,000,000 shares of Preferred Stock, $.001 par value, none of which are outstanding -23- 29 and (ii) 200,000,000 shares of Common Stock, of which 53,019,777 shares were issued and outstanding, 10,534,396 shares were reserved for issuance pursuant to Adaptec's employee and director stock plans, and 120,000,000 shares were reserved for issuance under Adaptec's Shareholder Rights Plan. The authorized capital stock of Acquisition Sub consists of 100 shares of Common Stock, $.001 par value, all of which, as of the date hereof, are issued and outstanding and owned by Adaptec. All of the outstanding shares of Adaptec's and Acquisition Sub's respective capital stock have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in this Section 6.2, there are no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of Adaptec or any of its subsidiaries or obligating Adaptec or any of its subsidiaries to issue or sell any shares of capital stock of, or other equity interests in, Adaptec, or any of its subsidiaries. (b) The shares of Adaptec Common Stock to be issued pursuant to Section 3.1 of this Agreement are duly authorized and reserved for issuance, and the shares of Adaptec Common Stock to be issued pursuant to Section 3.5 of this Agreement will be duly authorized, and in each case upon issuance thereof will be validly issued, fully paid and nonassessable and, subject to notice of issuance, shall be approved for listing on the Nasdaq National Market. 6.3 Authorization. Adaptec and Acquisition Sub each has full power and authority (including full corporate power and authority) to execute and deliver this Agreement, to consummate the transactions contemplated hereunder and to perform its obligations hereunder and no other proceedings are necessary to authorize the execution, delivery and performance of this Agreement. This Agreement constitutes the valid and legally binding obligation of Adaptec and Acquisition Sub, enforceable against Adaptec and Acquisition Sub in accordance with its terms and conditions. Adaptec has full corporate power and authority to execute and deliver the Escrow Agreement. The Escrow Agreement constitutes the valid and binding obligation of Adaptec, enforceable against Adaptec in accordance with its terms and conditions. Except for the filing of (i) the S-4, (ii) a premerger notification report by Adaptec under the HSR Act, and (iii) the Articles of Merger with the Secretary of States of Washington and Delaware, neither Adaptec nor Acquisition Sub need give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. 6.4 Noncontravention. Neither the execution and the delivery of this Agreement and, to the extent applicable, the Shareholders Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Adaptec or Acquisition Sub is subject or any provision of their respective charters or bylaws, or (B) (i) conflict with, (ii) result in a breach of, (iii) constitute a default under, (iv) result in the acceleration of, (v) create in any party the right to accelerate, terminate, modify, or cancel, or (vi) require any notice under, any agreement, contract, lease, license, instrument, or other arrangement to which Adaptec or any of its subsidiaries or Acquisition Sub is a party or by which any of them is bound or to which any of their assets is subject. -24- 30 6.5 SEC Filings; Financial Statements. (a) Adaptec, has filed all forms, reports and documents required to be filed with the SEC since March 31, 1995, and has heretofore delivered to Cogent, in the form filed with the SEC, (i) its Annual Reports an Form 10-K for the fiscal years ended March 31, 1995 and March 31, 1994, (ii) its Quarterly Reports on Form 10-Q for the periods ended June 30, 1995, September 30, 1995, December 31, 1995, (iii) all proxy statements relating to Adaptec's meetings of shareholders (whether annual or special) held since March 31, 1995, (iv) all other reports filed by Adaptec with the SEC since March 31, 1995 and (v) all amendments and supplements to all such reports and registration statements, including Adaptec's Annual Report filed pursuant to Rule 14a-3 promulgated under the Exchange Act, filed by Adaptec with the SEC (collectively, the "Adaptec SEC Reports"). The Adaptec SEC Reports (i) were prepared in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of Adaptec's subsidiaries is required to file any forms, reports or other documents with the SEC. (b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Adaptec SEC Reports has been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and each fairly presents the consolidated financial position of Adaptec and its subsidiaries as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not, or are not expected to be, material in amount. (c) Adaptec has heretofore furnished to Cogent a complete and correct copy of any amendments or modifications, which have not yet been filed with the SEC but which are required to be filed, to agreements, documents or other instruments which previously had been filed by Adaptec with the SEC pursuant to the Securities Act or the Exchange Act. 6.6 No Undisclosed Liabilities. Neither Adaptec nor any of its subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) which are in the aggregate material to the business, operations or financial condition of Adaptec and its subsidiaries taken as a whole, except liabilities adequately reserved for in the balance sheet as of March 31, 1996 provided to Cogent (the "Adaptec Balance Sheet") or incurred since March 31, 1996 in the ordinary course of business and consistent with past practice and liabilities incurred in connection with this Agreement. 6.7 Absence of Certain Changes or Events. Since March 31, 1996, Adaptec and its subsidiaries have conducted their respective businesses in the Ordinary Course of Business, and since such date, there has not occurred any change in the financial condition, results of operations, -25- 31 business or prospects of Adaptec, or any development that would reasonably be expected to have a Material Adverse Effect on Adaptec. 6.8 Absence of Litigation. Other than as disclosed in the Adaptec SEC Reports, there are no claims, actions, suits, proceedings or investigations pending or, to the best knowledge of Adaptec, threatened against Adaptec or any of its subsidiaries, or any properties or rights of Adaptec or any of its subsidiaries, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign, that, individually or in the aggregate, could have a Material Adverse Effect on Adaptec. 6.9 Information Supplied. None of the information supplied by Adaptec or Acquisition Sub for inclusion in the Proxy Statement or the S-4 at the time such information is supplied and at the time of the Shareholders' Meeting, contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or will, in the case of the S-4, at the time the S-4 becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. 6.10 Brokers' Fees. Except as contained in Section 11.12, neither Adaptec nor Acquisition Sub has any liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Cogent could become liable or obligated. 6.11 Full Disclosure. No representation or warranty in this Section 6 or in any document delivered by Adaptec or Acquisition Sub pursuant to the transactions contemplated by this Agreement, and no statement, certificate or schedule furnished or to be furnished by Adaptec or Acquisition Sub to Cogent in, or pursuant to the provisions of, this Agreement contains or shall contain any untrue statement of a material fact or omits or shall omit to state any material fact necessary, in the light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. There is no event, fact or condition that materially and adversely affects the business, assets (including intangible assets), financial condition, results of operations or prospects of Adaptec and its subsidiaries taken as a whole, or that reasonably could be expected to do so, that has not been set forth in this Agreement or in the Adaptec Disclosure Schedule. 7. Conduct and Transactions Prior to Effective Time; Additional Agreements. 7.1 General. Each of Adaptec, Cogent and Acquisition Sub will use its reasonable best efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Section 8 below). 7.2 Notices and Comments. Cogent will give any notices to third parties and will use its reasonable best efforts to obtain any third party consents that Adaptec reasonably may request -26- 32 in connection with the matters identified in Section 4.4 of the Cogent Disclosure Schedule and as may be necessary for Adaptec to operate the business of Cogent as an ongoing concern following the Closing Date. Notwithstanding the foregoing, nothing in this Section 7.2 shall be construed to require any Party to transfer or assign rights or other assets to a Person who is not a Party. 7.3 Operation of Business. Cogent will not engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, Cogent will not (i) cause or permit any amendment to its Articles of Incorporation or Bylaws, (ii) issue any capital stock or issue or grant any options, warrants or rights to acquire any capital stock (other than in connection with the exercise of stock options outstanding on the date of this Agreement) or (iii) declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem, purchase, or otherwise acquire any of its capital stock, or (iv) otherwise engage in any practice, take any action, or enter into any transaction of the sort described in Section 4.9 above. In addition, Cogent will comply with all laws, statutes, ordinances, rules, regulations and orders applicable to its or to the conduct of its business, except for violations that would not subject Cogent to a penalty or loss that would constitute a Material Adverse Effect on Cogent. 7.4 Preservation of Business. Cogent will use its best efforts to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers, and employees. 7.5 Access to Information. Cogent will permit Adaptec and its representatives to have access at all reasonable times, and in a manner so as not to interfere with the normal business operations of Cogent, to the business and operations of Cogent. Neither such access, inspection and furnishing of information to Adaptec and its representatives, nor any investigation by Adaptec and its representatives, shall in any way diminish or otherwise effect Adaptec's right to rely on any representation or warranty made by Cogent hereunder. All information received or made available to Adaptec and its representatives pursuant to this Section 7.5 shall be subject to and deemed covered by the terms of the Master Mutual Nondisclosure Agreement, NDA #3813 dated April 1, 1996 between Adaptec and Cogent. 7.6 Notice of Developments. Each Party will give prompt written notice to the others of any material adverse development causing a breach of any of its own representations and warranties in Section 4, Section 5 or Section 6 above. No disclosure by any Party pursuant to this Section 7,6, however, shall be deemed to amend or supplement the Cogent Disclosure Schedule or the Adaptec Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. 7.7 Best Efforts. Adaptec, Cogent and Acquisition Sub will each use its best efforts to effectuate the transactions contemplated hereby and to fulfill and cause to be fulfilled the conditions to closing under this Agreement. 7.8 Employment Agreements. Prior to the Effective Time of the Merger, Cogent will use its best efforts to obtain an employment agreement and covenant not to compete (the -27- 33 "Employment Agreement") in the form attached hereto as Exhibit 7.8(a) with the persons listed on Exhibit 7.8(b) attached hereto and with those other key employees designated by Adaptec following the date hereof. 7.9 Preparation of S-4 and the Proxy Statement; Other Filings. As promptly as practicable after the date of this Agreement, Cogent shall provide to Adaptec and its counsel for inclusion in the Prospectus/Proxy Statement on the S-4 in form and substance satisfactory to Adaptec and its counsel, such information concerning Cogent, its operations, capitalization, technology, share ownership and other material as Adaptec or its counsel may reasonably request. As promptly as practicable after the date of this Agreement, Adaptec shall prepare and file with the SEC the S-4, in which the Proxy Statement will be included as a prospectus. Each of Adaptec and Cogent shall use its reasonable efforts to respond to any comments of the SEC, to have the S-4 declared effective under the Securities Act as promptly as practicable after such filing and to cause the Proxy Statement to be mailed to Cogent's shareholders at the earliest practicable time. As promptly as practicable after the date of this Agreement, Adaptec and Cogent shall prepare and file any other filings required under the Exchange Act, the Securities Act or any other Federal or state securities or "blue sky" laws relating to the Merger and the transactions contemplated by this Agreement and the Articles of Merger, including, without limitation, under the HSR Act (the "Other Filings"). Each company will notify the other company promptly of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff or any other governmental officials for amendments or supplements to the S-4, the Proxy Statement or any Other Filing or for additional information and will supply the other company with copies of all correspondence between such company or any of its representatives, on the one hand, and the SEC, or its staff or any other governmental officials, on the other hand, with respect to the S-4, the Proxy Statement, the Merger or any Other Filing. The Proxy Statement, the S-4 and the Other Filings shall comply in all material respects with all applicable requirements of law. Whenever any event occurs which should be set forth in an amendment or supplement to the Proxy Statement, the S-4 or any Other Filing, Adaptec or Cogent, as the case may be, shall promptly inform the other company of such occurrence and cooperate in filing with the SEC or its staff or any other government officials, and/or mailing to shareholders of Cogent, such amendment or supplement. The Proxy Statement shall include the unanimous recommendation of the Board of Directors of Cogent that the shareholders of Cogent approve the Merger. 7.10 Shareholder Approval. Cogent will call a meeting of its shareholders (the "Shareholders' Meeting") to be hold as promptly as practicable for the purpose of obtaining the shareholder approval required in connection with the transactions contemplated hereby and by the Articles of Merger and shall use all reasonable efforts to obtain such approval. Cogent shall coordinate and cooperate with Adaptec with respect to the timing of the Shareholders Meeting. Cogent shall not change the date of the Shareholders Meeting without the prior written consent of Adaptec, nor shall Cogent adjourn the Shareholders Meeting without the prior written consent of Adaptec, unless such adjournment is due to the lack of a quorum, in which case the Chairman of the Shareholders Meeting shall announce at such meeting the time and place of the adjourned meeting. -28- 34 7.11 Nasdaq National Market. Adaptec shall use its best efforts to cause the shares of Adaptec Common Stock issuable to the shareholders of Cogent in the Merger to be authorized for quotation on the Nasdaq National Market, upon official notice of issuance. 7.12 Affiliates. Cogent shall use its best efforts to deliver or cause to be delivered to Adaptec, from each "affiliate" of Cogent within the meaning of Accounting Series Releases 130 and 135 of the SEC, an agreement in the form attached as Exhibit 7.12 (the "Affiliate Agreement"). Adaptec and Acquisition Sub shall be entitled to place appropriate legends on the certificates evidencing any Adaptec Common Stock to be received by such "affiliates" pursuant to the terms of this Agreement and the Articles of Merger, and to issue appropriate stop transfer instructions to the transfer agent for Adaptec Common Stock, consistent with the terms of such Affiliates Agreements. 7.13 Pooling Accounting. Each Party agrees not to take any action that would adversely affect the ability of Adaptec to treat the Merger as a pooling of interests, and each party agrees to take such action as may be reasonably required to negate the impact of any past actions which would adversely impact the ability of Adaptec to treat the Merger as pooling of interests. 7.14 Exclusivity. None of the Majority Shareholders nor Cogent will (i) solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets, of Cogent (including any acquisition structured as a merger, consolidation, or share exchange) (each an "Other Proposal") or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any Other Proposal, Except to immediate family members or trust created in their behalf, none of the Majority Shareholders will transfer or offer to transfer any of their Cogent Common Stock. None of the Majority Shareholders will vote their Cogent Common Stock in favor of any Other Proposal. 7.15 Post-Closing Cooperation. In case at any time after the Effective Time of the Merger any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 9 below), 7.16 Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction (A) on or prior to the Effective Time of the Merger involving Cogent or (B) arising out of Adaptec's operation of the business of the Surviving Corporation following the Effective Time of the Merger in the manner in which it is presently conducted and planned to be conducted, each of the other Parties will cooperate with the party, its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be reasonably necessary in connection with the contest or defense, all at -29- 35 the reasonable cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 9 below), 7.17 Transition. None of the Majority Shareholders will take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of Cogent from maintaining the same business relationships with the Surviving Corporation after the Effective Time of the Merger as it maintained with Cogent prior to the Effective Time of the Merger. 7.18 Confidentiality. Each of the Majority Shareholders will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement. In the event that any of the Majority Shareholders is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process or by law or regulation pursuant to the advice of counsel) to disclose any Confidential Information, that Person will notify Adaptec promptly of the request or requirement so that Adaptec may seek an appropriate protective order. If, in the absence of a protective order, any of the Majority Shareholders and directors and officers of Cogent is, on the advice of counsel, compelled to disclose any Confidential Information, that Person may disclose the Confidential Information; provided, however, that such disclosing Person shall use its reasonable efforts to obtain, at the reasonable request of Adaptec, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as Adaptec shall designate. In the event that anything in this Section 7.18 is inconsistent with any provision of an Employment Agreement, the terms of such Employment Agreement shall prevail. 7.19 Cogent Employees. Except for the Cogent employees who will be executing Employment Agreements, all employees of Cogent following the Closing will be subject to Adaptec's standard employment terms and practices. Except as otherwise prohibited, these employees will be eligible to participate in all standard Adaptec benefit plans. Employees of Cogent as of the Effective Time shall be permitted to participate in the Adaptec Employee Stock Purchase Plan commencing on the first enrollment date following the Effective Time, subject to compliance with the eligibility provisions of such plan. 8. Conditions to Obligation to Close. 8.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger is subject to the satisfaction prior to the Closing Date of the following conditions: (a) the S-4 shall have been declared effective by the SEC under the Securities Act, no stop order suspending the effectiveness of the S-4 shall have been issued by the SEC and no proceeding for that purpose (or any similar proceeding with respect to the Proxy Statement) shall have been initiated or threatened by the SEC, -30- 36 (b) this Agreement and the Articles of Merger shall have been approved and adopted by the affirmative vote or consent of the holders of at least 90% of the issued and outstanding shares of Cogent Common Stock present, in person or by proxy, at the meeting of Cogent's shareholders Contemplated by Section 7.10; (c) the applicable waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated; and (d) all material authorizations, consents, orders or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, any governmental entity necessary for the consummation of the transactions contemplated by this Agreement and the Articles of Merger shall have been filed, expired or been obtained. 8.2 Conditions to Adaptec's Obligation to Close. The obligation of Adaptec and Acquisition Sub to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) the representations and warranties set forth in Section 4 and Section 5 above (supplemented by the updated Cogent Disclosure Schedule permitted under Section 4) shall be true and correct in all material respects at and as of the Closing Date; (b) Cogent shall have performed and complied with all of its covenants hereunder in all respects through the Closing; (c) all Stock Rights shall have been terminated or shall have been exercised for, or converted into, shares of Cogent Common Stock; (d) Cogent shall have procured all of the third party consents specified in Section 7.2 above; (e) no action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) affect materially and adversely the right of Adaptec to control the Surviving Corporation following the Effective Time of the Merger, or (D) affect adversely the right of Cogent or the Surviving Corporation to own its assets (including without limitation its intellectual property assets) and to operate its businesses (and no such injunction, judgment, order, decree, ruling or charge shall be in effect) and no law, statute, ordinance, rule, regulation or order shall have been enacted, enforced or entered which has caused or will likely cause any of the effects under clause (A), (B), (C), or (D) of this Section 8.2(f) to occur. -31- 37 (f) the Chief Executive Officer of Cogent shall have delivered to Adaptec a certificate to the effect that each of the conditions specified above in Sections 8.2(a) to 8.2(e) (inclusive) is satisfied in all respects; (g) each of the employees of Cogent listed on Exhibit 7.8(b) attached hereto shall have executed and delivered an Employment Agreement and such agreement shall be in full force and effect; (h) Adaptec shall have received from counsel to Cogent an opinion in form and substance mutually satisfactory to Adaptec and Cogent, addressed to Adaptec, and dated as of the Closing Date; (i) Adaptec shall have received a letter from Price Waterhouse in form and substance satisfactory to Adaptec to the effect that the Merger will be accounted for as a pooling of interests. (j) Adaptec shall have received the executed Cogent Affiliate Agreements contemplated by Section 7.12. (k) Adaptec, as agent for the shareholders of Cogent shall have received a properly executed FIRPTA Notification Letter, in form and substance satisfactory to Adaptec, which states that shares of capital stock of Cogent do not constitute "United States real property interests" under Section 897(c) of the Code, for purposes of satisfying Adaptec's obligations under Treasury Regulation Section 1.1445-2(c)(3). (l) all actions to be taken by the Majority Shareholders and Cogent in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Adaptec and its counsel; (m) each officer and director of Cogent shall have executed and delivered a general release of any claims against Cogent and its successors in the form attached hereto as Exhibit 7.2(m); (n) there shall have been no Material Adverse Effect on Cogent on or before the Closing Date; (o) all disputes between Cogent and third parties shall have been resolved to the satisfaction of Adaptec; (p) Deloitte & Touche LLP shall have completed its audit of Cogent's financial statements for the fiscal year ended March 31, 1996 and such audit shall be satisfactory to Adaptec; and -32- 38 (q) Adaptec shall have received a letter from Deloitte & Touche LLP to the effect that it is not aware of any actions taken by Cogent or its Affiliates that would adversely affect the ability of Adaptec to account for the merger as a pooling of interests. Adaptec may waive any condition (in whole or in part) specified in this Section 8.2 if it executes a writing so stating at or prior to the Closing. 8.3 Conditions to Cogent's Obligation. The obligation of Cogent to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (a) the representations and warranties of Adaptec and Acquisition Sub set forth in Section 6 above shall be true and correct in all respects at and as of the Closing Date; (b) Adaptec shall have performed and complied with all of its covenants hereunder in all respects through the Closing; (c) no action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect) and no law, statute, ordinance, rule, regulation or order shall have been enacted, enforced or entered which has caused or will likely cause any of the effects under clause (A) or (B) of this Section 8.3(c) to occur; (d) the Chief Financial Officer or other duly authorized officer of Adaptec shall have delivered to Cogent a certificate to the effect that each of the conditions specified above in Sections 8.3(a) to 8.3(c) (inclusive) is satisfied in all respects; (e) Adaptec and the employees of Cogent listed on Exhibit 6.8(b) hereto shall each have executed and delivered an Employment Agreement and such agreement shall be in full force and effect; (f) Cogent shall have received from counsel to Adaptec an opinion in form and substance mutually satisfactory to Adaptec and Cogent, addressed to Cogent, and dated as of the Closing Date; (g) Cogent shall have received an opinion from its counsel to the effect that the Merger will constitute a reorganization within the meaning of Section 368 of the Code. (h) all actions to be taken by Adaptec in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents -33- 39 required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to Cogent and its counsel. Cogent may waive any condition (in whole or in part) specified in this Section 8.3 if it executes a writing so stating at or prior to the Closing. 9. Survival of Representations, Warranties and Covenants; Indemnification. 9.1 Survival. All of the representations and warranties of the Parties contained in Sections 4, 5 and 6 shall survive the Closing (even if the damaged Party knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for a period of one year following the Closing. The covenants and agreements in this Agreement shall survive except to the extent they are specifically limited by their terms. 9.2 Indemnification Provisions for Benefit of Adaptec. The Majority Shareholders agree, jointly and severally, to indemnify and hold harmless Adaptec from and against the entirety of any and all claims, actions, proceedings, or direct or indirect losses, including court costs and reasonable attorneys' fees and expenses ("Losses") resulting from (i) any breach of any of the representations, warranties, agreements or covenants of Cogent or the Majority Shareholders contained herein; (ii) any failure of Cogent prior to the Closing to comply with applicable federal and state securities laws; and (iii) any failure of Cogent to comply with applicable German tax laws with respect to Cogent's German operations. Notwithstanding the foregoing, the Majority Shareholders shall not be required to indemnify Adaptec under this Section 9 except to the extent that the cumulative amount of the Losses incurred by Adaptec exceeds $ 150,000, in which case the Majority Shareholders shall be obligated to indemnify Adaptec only for the amount of such Losses that exceed $150,000. 9.3 Procedure for Indemnification Claims. (a) In the event that Adaptec makes a claim against any Majority Shareholder for indemnification under Section 9.2 (a "Claim"), it shall notify the Shareholders' Representative in writing as to the existence and amount of the Claim (the "Claim Notice"). If the Majority Shareholder with respect to such Claim disputes the existence or the amount of such Claim, the Majority Shareholder shall notify Adaptec in writing (with reasonable specificity) within thirty (30) days following the Adaptec's receipt of the Claim Notice (the "Response Notice"). Upon such an exchange of written notification, the parties will negotiate in good faith for up to thirty (30) days or such other period of time as the parties mutually agree in an effort to resolve their differences with respect to such Claim. If no Response Notice is received by Adaptec within thirty (30) days of the Shareholders' Representative's receipt of the Claim Notice or if the parties have not resolved their differences with the aforementioned thirty (30) day negotiation period, then Adaptec shall be entitled to recover the amount of the Claim from the Escrow Fund pursuant to the Escrow Agreement. (b) Adaptec, may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, any third party claim which may give rise to a Claim -34- 40 under this Section 9 in any manner Adaptec may deem appropriate (and Adaptec need not consult with, or obtain any consent from, any Majority Shareholder in connection therewith), and the Majority Shareholders will remain responsible for any Losses Adaptec may suffer resulting from, arising out of, relating to, in the nature of, or caused by the third party claim to the fullest extent provided in this Section 9. 9.4 Exclusivity of Remedy. Notwithstanding any other provision of this Agreement, in the absence of fraud, Adaptec's sole recourse following the Closing for any breach by Cogent or any Majority Shareholder of any representation, warranty, agreement or covenant contained herein shall be the recovery of the Escrow Amount Common Stock pursuant to the Escrow Agreement. 10. Termination. 10.1 Termination of the Agreement. Certain of the Parties may terminate this Agreement as provided below: (a) Adaptec and Cogent may terminate this Agreement as to all Parties by mutual written consent at any time prior to the Closing; (b) Adaptec may terminate this Agreement by giving written notice to Cogent and the Majority Shareholders at any time prior to the Closing (A) in the event either of Cogent or the Majority Shareholders has breached any representation, warranty, or covenant contained in this Agreement in any respect, Adaptec, has notified Cogent and the Majority Shareholders of the breach, and the breach has continued without cure for a period of thirty (30) days after the notice of breach or (B) if the Closing shall not have occurred on or before October 31, 1996, by reason of the failure of any condition precedent under Section 8.1 or 8.2 hereof (unless the failure results primarily from Adaptec itself breaching any representation, warranty, or covenants contained in this Agreement); and (c) Cogent may terminate this Agreement by giving written notice to Adaptec and the Majority Shareholders at any time prior to the Closing (A) in the event Adaptec has breached any representation, warranty, or covenant contained in this Agreement in any respect, Cogent has notified Adaptec of the breach, and the breach has continued without cure for a period of thirty (30) days after the notice of breach or (B) if the Closing shall not have occurred on or before October 31, 1996, by reason of the failure of any condition precedent under Section 8.1 or 8.3 hereof (unless the failure results primarily from Cogent itself breaching any representation, warranty, or covenants contained in this Agreement). 10.2 Effect of Termination. If any Party terminates this Agreement pursuant to Section 10.1. above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any liability of any Party then in breach); provided, however, that the confidentiality provisions contained in Section 7.18 above shall survive termination. 11. Miscellaneous. -35- 41 11.1 Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of Adaptec and Cogent; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Parties prior to making the disclosure). 11.2 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties, the shareholders and option holders of Cogent and their respective successors and permitted assigns. 11.3 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. 11.4 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties; provided, however, that Adaptec may (i) assign any or all of its rights and interests hereunder to one or more of its subsidiaries and (ii) designate one or more of its subsidiaries to perform its obligations hereunder (in any or all of which cases Adaptec nonetheless shall remain responsible for the performance of all of its obligations hereunder). 11.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 11.6 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 11.7 Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given or received if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below: If to Adaptec: Adaptec, Inc. 691 S. Milpitas Blvd. Milpitas, California 95035 Attention: Christopher G. O'Meara Alicia Jayne Moore, Esq. -36- 42 Copy to: Wilson, Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Henry P. Massey, Jr., Esq. If to Cogent: Cogent Data Technologies, Inc. 640 Mullis St. Friday Harbor, WA 98250 Attention: Charles Anderson Deanna Anderson Copy to: Davis Wright Tremaine 2600 Century Square Seattle, WA 98101-1688 Attention: A. Peter Parsons, Esq. If to the Majority Shareholders: Deanna Anderson c/o Cogent Data Technologies, Inc. 640 Mullis St. Friday Harbor, WA 98250 Copy to: Davis Wright Tremaine 2600 Century Square Seattle, WA 98101-1688 Attention: A. Peter Parsons, Esq. Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. -37- 43 11.8 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of California without giving effect to any choice or conflict of law provision or rule (whether of the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California. 11.9 Forum Selection; Consent to Jurisdiction. All disputes arising out of or in connection with this Agreement shall be solely and exclusively resolved by a court of competent jurisdiction in the State of California. The Parties hereby consent to the jurisdiction of the Superior Court of the State of California and the United States District Courts of California and waive any objections or rights as to forum nonconveniens, lack of personal jurisdiction or similar grounds with respect to any dispute relating to this Agreement. 11.10 Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by Adaptec, Cogent and the Majority Shareholders. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior to subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent occurrence. 11.11 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 11.12 Expenses. Each of Adaptec and Cogent will bear their own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby; provided, however, that the shareholders of Cogent will be responsible for (i) any brokers', finders' or advisory fees payable on behalf of Cogent in connection with the Agreement and the transactions contemplated hereby in excess of $700,000, and (ii) any legal or accounting fees in excess of $100,000 undertaken on behalf of Cogent or its principals in connection with the Agreement and the transactions contemplated hereby. 11.13 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. 11.14 Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 11.15 Shareholders' Representative. The Majority Shareholders hereby appoint Deanna Anderson as their agent and representative (the "Shareholders' Representative") for the purposes of: (i) representing, acting for and binding each of them for all purposes of this Agreement, -38- 44 including without limitation, authorizing delivery to Adaptec of the Adaptec Shares in the Escrow Fund in satisfaction of claims by Adaptec, the settlement of any controversies or disagreements between Adaptec and the Majority Shareholders of Cogent hereunder; (ii) receiving or giving any notices to or from the Majority Shareholders hereunder; and (iii) communicating with Adaptec or Cogent as to any matters relating to this Agreement. In the event Deanna Anderson is unable, unwilling or unavailable to serve as the Shareholders' Representative, the Majority Shareholders hereby appoint Charles Anderson to serve in such capacity; provided that any such agency may be changed by the holders of a majority in interest in the Escrow Amount upon not less than 10 days written notice to Adaptec. Adaptec shall be entitled to presumptively rely without further inquiry upon all acts of, and communications from, the Shareholders' Representative as being the authorized actions and communications of the Shareholders' Representative as approved by the Majority Shareholders. The Shareholders' Representative shall be entitled to take binding action on behalf of the Majority Shareholders upon obtaining the approval of such Majority Shareholders who immediately prior to the Closing owned at least 51% of the aggregate voting power of all of the Majority Shareholders. The Shareholders' Representative shall not be liable for any act done or omitted while acting in good faith and the exercise of reasonable judgment. Each Majority Shareholder hereby further agrees that he will indemnify and hold harmless the Shareholders' Representative against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Shareholders' Representative in connection with any and all actions taken by the Shareholders' Representative under the provisions of this Section 11.15 and under Article 8 hereunder. 11.16 Attorneys' Fees. If any legal proceeding or other action relating to this Agreement is brought or otherwise initiated, the prevailing party shall be entitled to recover reasonable attorneys fees, costs and disbursements (in addition to any other relief to which the prevailing party may be entitled). 12. Location of Definitions. The following table sets forth the Sections of this Agreement in which certain terms are defined:
Term Section ----------------- ----------------- Acquisition Sub Introduction Affiliate 1 Affiliated Group 4.12(d) Adaptec 2.1 Adaptec Common Stock Introduction Adaptec Disclosure Schedule 6 Adaptec SEC Reports 6.5(a) Certificates 3.4(c) Closing 2.2 Closing Date 2.2 Code 2.4 Cogent Introduction Cogent Common Stock 2.1 Cogent Disclosure Schedule 4
-39- 45
Term Section ---- ------- Cogent Shareholders' Meeting 7.10 Confidential Information 1 Controlled Group of Corporations 4.2(b) Dissenting Shareholder 3.2 Dissenting Shares 3.2 Exchange Agent 3.4(a) Exchange Ratio 3.1 Effective Date of the Merger 2.1 Effective Time of the Merger 2.1 Employee Benefit Plan 1 Employee Pension Benefit Plan 1 Employee Welfare Benefit Plan 1 Employment Agreement 7.8 Environmental, Health and Safety Laws 4.27(a) ERISA 1 Fiduciary 4.25 Financial Statements 4.6 Intellectual Property 1 Majority Shareholders Introduction Merger 2.1 Merger Agreement 2.1 Most Recent Balance Sheet 4.8 Most Recent Fiscal Year End 4.6 Ordinary Course of Business 1 Party Introduction Person 1 Registration Statement/Proxy Statement 4.2 Security Interest 1 Shareholders' Meeting Date 7.10 Surviving Corporation 2.3 Taxes 4.12(a) Tax Returns 4.12(b)
-40- 46 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as of the date first above written. COGENT DATA TECHNOLOGIES, INC, Company: By: /s/ ----------------------------- Title: President -------------------------- Adaptec: ADAPTEC, INC. By: ----------------------------- Title: -------------------------- Acquisition Sub: CDT ACQUISITION CORP. By: /s/ ----------------------------- Title: -------------------------- Majority Shareholders: By: /s/ Charles Anderson ----------------------------- Charles Anderson By: /s/ Deanna Anderson ----------------------------- Deanna Anderson By: /s/ Alan Ballanca ----------------------------- Alan Ballanca By: /s/ Richard Rome 5/31/96 ----------------------------- Richard Rome By: /s/ Nash Gubelman ----------------------------- Nash Gubelman By: /s/ Frank Foster ----------------------------- Frank Foster -41- EX-2.2 3 AGREEMENT/PLAN OF REORGANIZATION DATED 8/6/96 1 EXHIBIT 2.2 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into as of this 6 day of August, 1996, among Adaptec, Inc., a California corporation ("Adaptec"), Adaptec Acquisition Corporation, a California corporation and a wholly-owned subsidiary of Adaptec ("Adaptec Sub"), and Data Kinesis, Inc., a California corporation ("DKI"). RECITALS A. The parties intend that, subject to the terms and conditions of this Agreement, Adaptec Sub will merge with and into DKI in a reverse triangular merger (the "Merger"), with DKI to be the surviving corporation of the Merger, all pursuant to the terms and conditions of this Agreement and an Agreement of Merger substantially in the form of Exhibit A (the "Agreement of Merger") and the applicable provisions of the laws of the State of California. B. Upon the effectiveness of the Merger, (i) all outstanding capital stock of DKI ("DKI Stock") will be converted into the right to receive cash as set forth herein, and (ii) Adaptec will assume all outstanding options to purchase shares of capital stock of DKI and such options will become options to acquire Adaptec Common Stock, as provided in this Agreement and the Agreement of Merger. NOW, THEREFORE, the Parties hereto hereby agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement the following terms have the following meanings (terms defined in the singular have a correlative meaning when used in the plural and vice versa). Certain other terms are defined in the text of this Agreement, the location of which is set forth herein. 1.1 "Affiliate" of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. 1.2 "Employee Benefit Plan" means any (a) nonqualified deferred compensation, retirement plan, severance plan or similar plan or arrangement; (b) Employee Pension Benefit Plan; (c) Employee Welfare Benefit Plan; (d) Multiemployer Plan (as set forth in Section 3(37) of ERISA and Section 414(f) of the Internal Revenue Code of 1986, as amended (the "Code")); and (e) any other nonqualified plan providing welfare benefits, including but not limited to medical, dental, life insurance and disability benefits. 1.3 Employee Pension Benefit Plan" means a plan as set forth in Section 3(2) of ERISA. 1.4 "Employee Welfare Benefit Plan" means a plan as set forth in Section 3(1) of ERISA. 1.5 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2 1.6 "Intellectual Property" means all (a) inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof; (b) trademarks, service marks, trade dress, logos, trade names, and corporate names, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith; (c) copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith; (d) trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, drawings, specifications, customer and supplier lists, pricing and cost information, financial information, and business and marketing plans and proposals); (e) computer software (including data and related documentation); (f) mask work rights; (g) other proprietary rights; and (h) copies and embodiments thereof (in whatever form or medium). 1.7 "Material Adverse Change" or "Material Adverse Effect" means a material adverse change or effect on the business, financial condition, operations, results of operations, or future prospects, as such prospects exist at the time of the applicable representation or covenant, of DKI or Adaptec, as appropriate. 1.8 "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). 1.9 "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). 1.10 "Security Interest" means any mortgage, pledge, lien, encumbrance or other security interest. 1.11 The following table sets forth the Sections of this Agreement in which certain terms are defined:
TERM SECTION ---- ------- Adaptec Disclosure Package............ 4.4 Adaptec Option, Adaptec Options ...... 2.3 Adaptec Stock Price .................. 2.3 Adaptec Upper Bound .................. 2.3 Adaptec Lower Bound.................... 2.3 Affiliate............................. 1.1 Affiliated Group ..................... 3.14(d) Balance Sheet Date ................... 3.9 Claim ................................ 11.4 Claim Certificate .................... 11.4 Closing .............................. 7.1 Closing Date ......................... 7.1 Closing Price ........................ 2.3 Confidential Intellectual Property ... 3.16(b) Consent to Option Assumption ......... 2.3 Controlled Group of Corporations...... 3.23(b) Dissenting Shares..................... 2.2
-2- 3
TERM SECTION ---- ------- DKI Ancillary Agreements ......................... 3.2(a) DKI Benefit Arrangements ......................... 3.22(b) DKI Certificates ................................. 7.2(b) DKI Disclosure Schedule .......................... 3 DKI Legal/Accounting Fee Cap ..................... 12.8 DKI Option, DKI Options .......................... 2.3 DKI Optionholder Material ........................ 3.31 DKI Plan ......................................... 2.3 DKI Shareholder Materials ........................ 3.31 Exchange Ratio ................................... 2.3 Effective Time.................................... 2.1 Employee Benefit Plan ............................ 1.2 Employee Pension Benefit Plan .................... 1.3 Employee Welfare Benefit Plan .................... 1.4 Environmental, Health, and Safety Laws ........... 3.25(a)(i) ERISA ............................................ 1.5 Exchange Ratio ................................... 2.3 Exercise Price ................................... 2.3 Extremely Hazardous Substance..................... 3.25(a)(ii) FIRPTA............................................ 9.15 Fiduciary ........................................ 3.23(b)(i) Financial Statements ............................. 3.6 HSR Filing ....................................... 5.6 Hazardous Material ............................... 3.25(a)(iii) Holdback Amount .................................. 2.5 Holdback Period .................................. 2.5 Holdback Payment ................................. 7.2(c) Indemnification Letter ........................... 9.19 Indemnified Persons .............................. 11.2 Indemnifying Shareholder ......................... 11.2 Initial Payment .................................. 7.2(b) Intellectual Property ............................ 1.6 Letter of Intent ................................. 3.3(c) Material Adverse Change/Material Adverse Effect... 1.7 NFT .............................................. 3.32 NFT Stock Purchase Agreement ..................... 3.32 NFT Note ......................................... 3.32 Ordinary Course of Business ...................... 1.8 Outstanding DKI Stock ............................ 2.2 Person ........................................... 1.9 Per Share Cash Consideration ..................... 2.2(a) Per Share Holdback Amount ........................ 2.5 Securities Act ................................... 3.3(c) Security Interest ................................ 1.10 Shareholders' Agent .............................. 11.4 Signing Price .................................... 2.3 Taxes ............................................ 3.14(a) Tax Returns ...................................... 3.14(b) Third Party Claim ................................ 11.5 Third Party Licenses ............................. 3.16(c)
-3- 4 2. PLAN OF REORGANIZATION 2.1 The Merger. Subject to the terms and conditions of this Agreement and the Agreement of Merger, at the Effective Time, Adaptec Sub will be merged with and into DKI in accordance with applicable provisions of the laws of the State of California. The "Effective Time" means the time and date on which the Agreement of Merger and any required officers' certificates are filed with the office of the Secretary of State of the State of California and the Merger becomes effective under California Law. 2.2 DKI Shares. Subject to the terms and conditions of this Agreement, each share of DKI Common Stock and DKI Preferred Stock (determined on an as converted to Common Stock basis) issued and outstanding immediately prior to the Effective Time ("Outstanding DKI Stock"), other than shares, if any, held by persons exercising dissenters' rights in accordance with Chapter 13 of the California General Corporation Law ("Dissenting Shares"), will be converted, by virtue of the Merger, at the Effective Time and without further action on the part of any holder thereof, into the right to receive: (a) cash in an amount equal to (i) Forty-Four Million Dollars ($44,000,000) divided by (ii) the sum of (A) the number of shares of Outstanding DKI Stock and (B) the number of shares of DKI Common Stock issuable upon exercise of options, whether vested or unvested, or warrants which are outstanding immediately prior to the Effective Time (the resulting quotient taken to four decimal points, rounding upwards, the "Per Share Cash, Consideration"), reduced by the Per Share Holdback Amount, as defined in Section 2.5 hereof; and (b) payments, if any, with respect to any Holdback Amount, as defined below, released pursuant to Section 7. 2.3 DKI Options. Subject to the terms and conditions of this Agreement, at the Effective Time, Adaptec will assume each outstanding option to purchase DKI Common Stock (singularly, a "DKI Option" and, collectively, the "DKI Options") granted under DKI's 1996 Stock Option/Stock Issuance Plan, as amended (the "DKI Plan"), and each such DKI Option shall be amended so that it becomes an option to purchase shares of Adaptec Common Stock (singularly, an "Adaptec Option" and, collectively, the "Adaptec Options") for that number of shares determined by multiplying the number of shares of DKI Common Stock subject to such DKI Option by a fraction (the "Exchange Ratio") equal to (a) the Per Share Cash Consideration divided by (b) the Adaptec Stock Price, as defined below. The term "Adaptec Stock Price" shall mean the average closing sale price per share of Adaptec Common Stock quoted on the Nasdaq National Market for the five trading days prior to the second day prior to the Effective Time (the "Closing Price"); provided, however, (i) if the Closing Price exceeds 110% (the "Adaptec Upper Bound") of $40.925 (the "Signing Price"), the Adaptec Stock Price shall be the Adaptec Upper Bound, and (ii) if the Closing Price is less than 90% (the "Adaptec Lower Bound") of the Signing Price, the Adaptec Stock Price shall be equal to the Adaptec Lower Bound. Subject to the foregoing and Section 2.4 below, the exercise price per share (the "Exercise Price") for each such Adaptec Option will equal the exercise price of the corresponding DKI Option immediately prior to the Effective Time divided by the Exchange Ratio, such that there is no or de minimis change in the aggregate exercise price of each DKI Option. If the foregoing calculation results in an -4- 5 Adaptec Option being exercisable for a fraction of a share (after aggregation of all shares subject to such option), then the number of shares of Adaptec Common Stock subject to such Adaptec Option will be rounded down to the nearest whole number with no cash being paid for such fractional share. The per share Exercise Price of each Adaptec Option shall be rounded up to the nearest hundredth of a cent ($0.0001). Vesting accrued under the DKI Option prior to the Effective Time will be credited to an optionee for the purposes of determining the number of shares subject to exercise after the Merger. It is the intention of the parties that to the extent a DKI Option was an incentive stock option under Section 422 of the Internal Revenue Code prior to the Merger, the corresponding Adaptec Option shall continue to remain an incentive stock option unless the Closing Price is greater than the Adaptec Upper Bound, in which case the Adaptec Option shall be a non-qualified option. Unless the parties hereto and the optionee otherwise agree, the term, exercisability, vesting schedule and all other terms of the Adaptec Option will be substantially the same as those of the corresponding DKI Option. Each holder of a DKI Option shall execute a consent to option assumption and amendment ("Consent to Option Assumption") in substantially the form attached hereto as Exhibit 2.3. Adaptec will use its reasonable efforts to cause the Adaptec Common Stock issuable upon exercise of the Adaptec Options held by employees of Adaptec to be registered on Form S-8 of the Securities and Exchange Commission ("SEC") within seven (7) business days following the Effective Time and, as of the Effective Time, will have reserved a sufficient number of shares of Adaptec Common Stock for issuance upon exercise thereof. 2.4 Adjustments for Capital Changes. If prior to the Merger, Adaptec recapitalizes its Common Stock, splits-up its outstanding shares of Common Stock into a greater number, combines its outstanding shares of Common Stock into a lesser number, declares a dividend on its outstanding shares of Common Stock payable in shares or securities convertible into shares, or reorganizes, reclassifies or otherwise changes its outstanding shares of Common Stock into the same or a different number of shares of other classes, the Signing Price, the Closing Price, the Adaptec Upper Bound, the Adaptec Lower Bound, the Exchange Ratio, the Exercise Price and the number and type of securities subject to the Adaptec Options shall be appropriately adjusted. 2.5 Holdback. For a period of eighteen (18) months (the "Holdback Period") following the Closing Date, as defined below, Adaptec will hold Four Million Four Hundred Thousand Dollars ($4,400,000) (the "Holdback Amount") as security for the accuracy of DKI's representations and warranties set forth in Section 3 hereof, the performance of the covenants set forth in Section 5 hereof and the indemnification obligations set forth in Section 11 hereof. The term "Per Share Holdback Amount" shall mean an amount equal to (a) the Holdback Amount divided by (b) the number of shares of Outstanding DKI Stock, such quotient taken to four decimal points, rounding upwards. Following expiration of the Holdback Period, the Holdback Amount, less deductions made to such Holdback Amount pursuant to Section 7 hereof, will be paid as provided in Section 7 hereof. 2.6 Dissenting Shares. If holders of DKI Common Stock or DKI Preferred Stock are entitled to dissenters' rights in connection with the Merger under Chapter 13 of the California General Corporation Law, any Dissenting Shares shall not be converted into the right to receive the consideration set forth in Section 2.2 but shall be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to Chapter 13 of the California General Corporation Law. DKI shall give Adaptec prompt notice of -5- 6 any demand for appraisal or purchase with respect to Dissenting Shares, and Adaptec shall have the right to participate in all negotiations and proceedings with respect to such demand. 2.7 Effects of the Merger. At the Effective Time: (a) Adaptec Sub will be merged with and into DKI, the separate existence of Adaptec Sub will cease and DKI will be the surviving corporation, pursuant to the terms of the Agreement of Merger; (b) the Articles of Incorporation of DKI shall be the Articles of Incorporation of the surviving corporation, except that such Articles of Incorporation shall be amended to provide that the authorized capital stock of the surviving corporation shall be 10,000 shares of Common Stock; (c) the Bylaws of Adaptec Sub shall be the Bylaws of the surviving corporation; (d) the directors of Adaptec Sub immediately prior to the Effective Time will become the directors of the surviving corporation and the officers of Adaptec Sub immediately prior to the Effective Time will become the officers of the surviving corporation; (e) each share of Adaptec Sub's Common Stock outstanding immediately prior to the Effective Time will be converted into one share of Common Stock of the surviving corporation; (f) each share of DKI Stock and each DKI Option outstanding immediately prior to the Effective Time will be converted or assumed as provided in Sections 2.2 and 2.3 above; and (g) the Merger will, from and after the Effective Time, have all of the effects provided by applicable law. 2.8 Hart-Scott-Rodino Filings. Each of Adaptec and DKI, and their Affiliates, will promptly prepare and file the applicable notices (if any) required to be filed by it under the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act"), and comply promptly with any requests to it from the Federal Trade Commission or United States Department of Justice for additional information. 2.9 Funding of DKI. If the Closing does not occur prior to September 15, 1996, the parties hereto will discuss the funding needs of DKI and mechanisms to provide such funding to DKI. If the parties are unable to agree on a mechanism to provide funding to DKI within five (5) business days of initiation of such discussions, DKI may raise up to Two Hundred Fifty Thousand Dollars ($250,000) through the issuance of equity or debt to a third party, provided, however, that in the event of such funding, Adaptec's obligations pursuant to Sections 2.2 and 2.3 hereof shall be adjusted, to Adaptec's reasonable satisfaction, such that the total consideration paid by Adaptec and Adaptec Sub pursuant to the Merger and this Agreement, including liabilities assumed by Adaptec or Adaptec Sub and liabilities of DKI outstanding as of the Effective Time, shall not change as a result of such funding. Nothing herein shall be construed as an obligation or requirement that Adaptec provide any funds or payments to DKI prior to the Closing. 3. REPRESENTATIONS AND WARRANTIES OF DKI DKI hereby represents and warrants to Adaptec that the statements contained in this Section 3 are true, correct and complete as of the date of this Agreement, except as specifically set forth in the disclosure schedule delivered by DKI to Adaptec on the date hereof, a copy of which is attached hereto as Schedule 3 (referred to herein as the "DKI Disclosure Schedule"). The DKI Disclosure Schedule will be arranged in schedules corresponding to the lettered and numbered paragraphs contained in this Section 3. -6- 7 3.1 Organization and Good Standing. DKI is (a) a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation; (b) has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted; and (c) is qualified as a foreign corporation in each jurisdiction in which a failure to be so qualified could reasonably be expected to have a DKI Material Adverse Effect. Schedule 3.1 of the DKI Disclosure Schedule lists the current directors and officers of the Company. The operations and business now being conducted by the Company have not been conducted under any other name or entity. 3.2 Power, Authorization and Validity. (a) DKI has the right, power, legal capacity and authority to enter into and perform its obligations under this Agreement, and all agreements to which DKI is or will be a party that are required to be executed pursuant to this Agreement (the "DKI Ancillary Agreements"). The execution, delivery and performance of this Agreement and the DKI Ancillary Agreements have been duly and validly approved and authorized by DKI's Board of Directors. (b) No filing, authorization or approval, governmental or otherwise, on behalf of DKI or any Affiliate of DKI is necessary to enable DKI to enter into, and to perform its obligations under, this Agreement and the DKI Ancillary Agreements, except for (a) the filing of the Agreement of Merger with the California Secretary of State and the filing of appropriate documents with the relevant authorities of other states in which DKI is qualified to do business, if any; (b) the approval of the DKI shareholders of the transactions contemplated hereby; (c) the approvals of the holders of DKI Options as contemplated herein; and (d) the filings required by the HSR Act. (c) This Agreement and the DKI Ancillary Agreements are, or when executed by DKI will be, valid and binding obligations of DKI enforceable in accordance with their respective terms, except as to the effect, if any, of (a) applicable bankruptcy and other similar laws affecting the rights of creditors generally, and (b) rules of law governing specific performance, injunctive relief and other equitable remedies; provided, however, that the Agreement of Merger will not be effective until filed with the California Secretary of State. 3.3 Capitalization. (a) The entire authorized capital stock of DKI consists of 10,000,000 shares of DKI Common Stock, of which 176,539 shares are issued and outstanding as of the date hereof, and 283,666 shares of DKI Preferred Stock, of which 283,666 shares are issued and outstanding as of the date hereof. All outstanding shares of DKI Common Stock and DKI Preferred Stock are fully vested, and none of such shares are subject to any rights of repurchase. No holder of DKI Common Stock or DKI Preferred Stock is obligated to DKI under any note (or other instrument evidencing indebtedness) with respect to the purchase of such DKI Common Stock or DKI Preferred Stock. An aggregate of 429,134 shares of DKI Common Stock are reserved and authorized for issuance pursuant to the DKI Plan, of which options to purchase a total of 259,346 shares of DKI Common Stock are outstanding. All issued and outstanding shares of DKI Common Stock and DKI Preferred Stock have been duly authorized and validly issued, are fully -7- 8 paid and nonassessable, and are held of record by the respective DKI shareholders as set forth in Schedule 3.3(a) of the DKI Disclosure Schedule. No liquidation preference shall be due any share of DKI Preferred Stock as a result of the Merger or the transactions contemplated hereby. (b) All DKI Options have been duly authorized and validly issued and are held of record by the respective DKI optionholders as set forth in Schedule 3.3(b) of the DKI Disclosure Schedule, which schedule includes the number of shares of Common Stock subject to the vesting schedule (including vesting commencement date) of and the exercise price of each DKI Option and whether the recipient of such DKI Option was or is an employee, consultant or director of DKI. Attached to Schedule 3.3(b) are all form(s) of option grant documents, option exercise documents and all notices, attachments and other documents relating to such form(s). No DKI Option is subject to an acceleration of vesting, nor is any DKI Option subject to any other change in vesting as a result of the Merger and the transactions contemplated hereby. (c) Except as set forth in this Section 3.3, there are no options, warrants, calls, commitments, conversion privileges or preemptive or other rights or agreements outstanding to purchase any of DKI's authorized but unissued capital stock or any securities convertible into or exchangeable for shares of DKI Common Stock or DKI Preferred Stock, or obligating DKI to grant, extend, or enter into any such option, warrant, call, commitment, conversion privilege or other right or agreement, and there is no liability for dividends accrued but unpaid. Except for the letter agreement entered into by certain shareholders of DKI in connection with the Confidential Letter of Intent dated July 3, 1996 between Adaptec and DKI (the "Letter of Intent") and except as contemplated by Section 5.4 hereof, there are no voting agreements, rights of first refusal or other restrictions (other than normal restrictions on transfer under applicable federal and state securities laws) applicable to any of DKI's outstanding securities. DKI is not under any obligation to register under the Securities Act of 1933, as amended (the "Securities Act"), any of its presently outstanding securities or any securities that may be subsequently issued. All DKI Common Stock and DKI Preferred Stock issued, offered and sold by the Company was issued, offered and sold in compliance with federal and state securities laws. 3.4 Subsidiaries. DKI does not have any subsidiaries or any interest, direct or indirect, in any corporation, partnership, joint venture or other business entity. 3.5 No Violation. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (a) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which DKI is subject or any provision of the Amended and Restated Articles of Incorporation or Bylaws of DKI; or (b) (i) conflict with, (ii) result in a breach of, (iii) constitute a default under, (iv) result in the acceleration of, (v) create in any party the right to require any notice under, accelerate, terminate, modify, or (vi) result in the cancellation of any agreement, contract, lease, license, instrument, franchise permit or other arrangement to which DKI is a party or by which it is bound or to which any of its assets is subject. 3.6 DKI's Financial Statements. Attached as Schedule 3.6 of the DKI Disclosure Schedule are copies of DKI's unaudited balance sheets for the year ended December 31, 1995, DKI's unaudited balance sheet for the six months ended Juno 30, 1996 and unaudited income -8- 9 statements for the same periods (collectively, the "Financial Statements"). The Financial Statements (a) are in accordance with the books and records of DKI, (b) fairly present the financial condition of DKI at the date therein indicated and the results of operations for the period therein specified and (c) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, subject, in the case of the unaudited Financial Statements, to normal year end accruals. 3.7 Books and Records. (a) The books, records and accounts of DKI (i) are in all material respects true, complete and correct; (ii) have been maintained in accordance with good business practices on a consistent basis; (iii) are stated in reasonable detail and accurately, in all material respects, and fairly reflect the transactions and dispositions of the assets of DKI; and (iv) accurately, in all material respects, and fairly reflect the basis for the Financial Statements. (b) DKI's internal accounting controls are sufficient to provide reasonable assurances that; (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary (A) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements and (B) to maintain accountability for assets; and (iii) the amount recorded for assets on the books and records of DKI is compared with the existing assets at reasonable intervals, and appropriate action is taken with respect to any differences. 3.8 Litigation. DKI has not been and is not a party to any action, suit, proceeding, hearing, claim, arbitration or investigation, including without limitation any that may prevent consummation of any of the transactions contemplated by this Agreement, in or before any court or administrative agency, nor, to the best of DKI's knowledge, has any such action, suit, proceeding, hearing, claim, arbitration or investigation been threatened. Neither DKI nor any of its assets has been nor is subject to any outstanding injunction, judgment, order, decree, ruling or charge. There are no facts or circumstances which DKI believes could reasonably form the basis of any claim against DKI. There is, to the best of DKI's knowledge, no reasonable basis for any shareholder or former shareholder of DKI, or any other person, firm, corporation, or entity, to assert a claim against DKI or Adaptec based upon; (i) ownership or rights to ownership of any shares of DKI Stock; (ii) any rights as a DKI shareholder, including any option or preemptive rights or rights to notice or to vote; or (iii) any rights under any agreement among DKI and its shareholders. 3.9 Undisclosed Liabilities. DKI has no liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any liability for taxes), except for liabilities set forth on the face of the balance sheets contained in the Financial Statements (rather than in any notes thereto) or the DKI Disclosure Schedule, except for those that may have been incurred after June 30, 1996 (the "Balance Sheet Date") in the Ordinary Course of Business and which in the aggregate would not have a DKI Material Adverse Effect. 3.10 Absence of Certain Changes. Except for transactions explicitly contemplated by this Agreement in connection with the Merger, since the Balance Sheet Date: -9- 10 (a) there has not been any DKI Material Adverse Change; (b) DKI has not sold, leased, transferred, or assigned any material assets or properties, tangible or intangible, other than in the Ordinary Course of Business; (c) DKI has not entered into, assumed or become bound under any agreement, contract, lease, or commitment or extended or modified the terms of any presently existing agreement, contract, lease or commitment that involves the payment, individually or in the aggregate, of more than $25,000 per annum, extends for more than one year or involves any relationship with an original equipment manufacturer, distributor or sales representative; (d) Neither DKI nor any other party has accelerated, terminated, made modifications to, or canceled any agreement, contract, lease, or license to which DKI is a party or by which it is bound, and DKI has not modified, canceled or waived or settled any debts or claims held by it or waived or settled any rights or claims of a substantial value; (e) none of the assets of DKI, tangible or intangible, has become subject to any Security Interest; (f) DKI has not made any capital expenditures or incurred or paid expenses exceeding $25,000 in the aggregate of all such capital expenditures or expenses, except legal and accounting fees incurred or paid in connection with the Merger and the transactions contemplated hereby; (g) DKI has not made any capital investment in, or any loan to, any other Person; (h) DKI has not created, incurred, assumed, or guaranteed any indebtedness for borrowed money and capitalized lease obligations; (i) DKI has not granted any license or sublicense to, or sold, transferred or assigned, any Intellectual Property rights; (j) there has been no change made or authorized in the Amended and Restated Articles of Incorporation or Bylaws of DKI; (k) DKI has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain any of its capital stock; (l) DKI has not declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock; (m) DKI has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property in excess of $25,000 in the aggregate of all such damage, destruction and losses; -10- 11 (n) DKI has not suffered any repeated, recurring or prolonged shortage, cessation or interruption of inventory shipments, supplies or utility services; (o) Other than increases in base compensation and cash bonuses in the Ordinary Course of Business, DKI has not made any loan to, entered into any transaction with, made any changes in employment terms with, or granted any salary increase, bonus or extraordinary payment to, any of its directors, officers, or employees or their Affiliates, and, in any event, any such loan, transaction, change, or grant was on fair and reasonable terms no less favorable to DKI than would be obtained in a comparable arm's length transaction with a Person which is not such a director, officer or employee or an Affiliate thereof; (p) DKI has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (q) DKI has not adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, or employees (or taken any such action with respect to any other Employee Benefit Plan); (r) DKI has not modified any outstanding DKI Option; (s) DKI has not suffered any adverse change or, to the best of its knowledge, any threat of any adverse change in its relations with, or any loss or threat of loss of, any of its major customers, distributors, dealers or major suppliers; (t) DKI has not received notice or had knowledge of any actual or threatened labor trouble or strike, or any other occurrence, event or condition of a similar character; (u) DKI has not changed any of the accounting principles followed by it or the method of applying such principles; (v) DKI has not made a change in any of its banking or safe deposit arrangements; (w) DKI has not entered into any transaction other than in the Ordinary Course of Business; and (x) DKI has not committed to any of the foregoing. 3.11 Broker's Fees. DKI has no liability or obligation to pay any fees or commissions to any broker, finder, agent or similar Person with respect to the transactions contemplated by this Agreement, nor has DKI entered into any agreement, written or oral, with respect to, or held any discussions with any such broker, finder, agent or similar Person with respect to the transactions contemplated by this Agreement, the result of which would entitle such broker, finder, agent or similar Person to a fee or commission in connection therewith. 3.12 Title to Assets. DKI has good and marketable title to, or a valid leasehold interest in the properties and assets used by it, located on its premises, or shown on the Financial -11- 12 Statements or acquired after the date thereof (other than properties sold or otherwise disposed of in the Ordinary Course of Business), free and clear of all Security Interests other than those set forth on the search of filings with respect to DKI under Article 9 of the Uniform Commercial Code, or any equivalent statute, attached hereto as Schedule 3.12. No Person other than DKI or DKI's lessors owns any assets or properties currently utilized in or reasonably necessary to the operations or business of DKI or situated on any of the premises of DKI. There are no existing contracts, agreements, commitments or arrangements with any Person to acquire any of the assets or properties of DKI (or any interest therein) except for this Agreement. 3.13 Legal Compliance. DKI has complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), the violation or breach of which would have a DKI Material Adverse Effect. No action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, notice or inquiry has been filed or, to the best of DKI's knowledge, commenced against or received by, any governmental body alleging any failure to so comply. DKI has all licenses, permits, approvals, registrations, qualifications, certificates and other governmental authorizations necessary for the operations of DKI and whose failure to have been obtained could reasonably be expected to have a Material Adverse Effect. 3.14 Tax Matters. (a) For purposes of this Agreement, "Taxes" means all federal, state, municipal, local or foreign income, gross receipts, windfall profits, severance, property, production, sales, use, value added, license, excise, franchise, employment, withholding, capital stock, levies, imposts, duties, transfer and registration fees or similar taxes or charges imposed on the income, payroll, properties or operations of DKI, together with any interest, additions or penalties, deficiencies or assessments with respect thereto and any interest in respect of such additions or penalties. (b) DKI has filed all reports and returns with respect to any Taxes ("Tax Returns") that it was required to file. All such Tax Returns were correct and complete in all material respects, and no such Tax Returns are currently the subject of audit. All Taxes owed by DKI (whether or not shown on any Tax Return) were paid in full when due. Any contested Taxes were contested or are being contested in good faith and, if currently being contested, are supported by adequate reserves. DKI has provided adequate reserves on its Financial Statements for the payment of any taxes accrued but not yet due and payable. DKI is not currently the beneficiary of any extension of time within which to file any Tax Return, and DKI has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. (c) There is no dispute or claim concerning any Tax liability of DKI either (i) claimed or raised by any authority in writing or (ii) based upon personal contact with any agent of such authority. There are no tax liens of any kind upon any property or assets of DKI, except for inchoate liens for taxes not yet due and payable. -12- 13 (d) DKI has not filed a consent under Section 341(f) of the Code concerning collapsible corporations. DKI has not made any payments, is not obligated to make any payments, and is not a party to any agreement that under any circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. DKI has not been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). DKI is not a party to any tax allocation or sharing agreement. DKI (i) has not been a member of any affiliated group within the meaning of Code Section 1504 or any similar group defined under a similar provision of state, local, or foreign law (an "Affiliated Group") filing a consolidated Federal Income Tax Return (other than a group the common parent of which was DKI) and (ii) has no any liability for the taxes of any Person (other than DKI) under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (e) The unpaid Taxes of DKI (i) did not, as of June 30, 1996, exceed by any amount the reserve for Tax liability (rather than any reserve for deferred taxes established to reflect timing differences between book and tax income) set forth on the face of DKI's June 30, 1996 balance sheet (rather than in any notes thereto) and (ii) will not exceed by any material amount that reserve as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of DKI in filing its Tax Returns. 3.15 Properties. (a) DKI owns no real property. (b) Schedule 3.15 of the DKI Disclosure Schedule lists and describes briefly all real or personal property leased or subleased to DKI. DKI has delivered to Adaptec correct and complete copies of the leases and subleases listed in Schedule 3.15 of the DKI Disclosure Schedule. (c) The equipment and other tangible assets that DKI owns and leases are free from material defects, have been maintained in accordance with normal industry practice, and are in good operating condition and repair (subject to normal wear and tear) and are usable in the Ordinary Course of Business. (d) All of the inventory of DKI is usable and fit for the purpose for which it was procured or manufactured, and none of such inventory is slow-moving, obsolete, damaged or defective, except as shall not have a DKI Material Adverse Effect. 3.16 Intellectual Property. (a) Patents, Trademarks and Copyrights. Schedule 3.16(a) of the DKI Disclosure Schedule identifies each patent, trademark, service mark, copyright, mask work, disclosure or other registration right with respect to Intellectual Property owned by DKI, or application for any of the foregoing, which is owned by DKI, has been issued to DKI or has been submitted by DKI for issuance and lists the application and registration number, date of application, date of registration, names of all assignors and registered owners and the country of filing for each such right, if applicable. All applications for registration of such Intellectual Property were true and accurate in all material respects at the time of filing. All registrations for -13- 14 such Intellectual Property are valid and enforceable, and all fees to maintain DKI's rights in such Intellectual Property due and payable on or before the Closing Date, including, without limitation, registration, maintenance and prosecution fees, and all professional fees incurred in connection therewith pertaining to such Intellectual Property, have been paid. No other person or entity other than DKI has the right to file, prosecute, or maintain applications for patents, copyrights, trademarks, trade names, or service marks which relate to any Intellectual Property owned by DKI, or any patents and registrations that issue therefrom. Schedule 3.16(a) of the DKI Disclosure Schedule also identifies each (i) trade name, dba or unregistered trademark used by DKI in connection with its businesses and (ii) each unregistered copyright owned by DKI. (b) Confidential Intellectual Property. DKI has identified for Adaptec and provided Adaptec an opportunity to review all material trade secrets, draft patent applications, product development plans, computer source code and other material Intellectual Property owned by DKI which is not generally available to the public or customers of DKI ("Confidential Intellectual Property"). DKI has taken all actions that are customary, necessary or reasonable to protect the confidentiality of the Confidential Intellectual Property and the enforceability of any trade secrets with respect thereto, including without limitation, the marking of all material confidential or proprietary information with appropriate "Proprietary" or "Confidential" legends, the establishment of policies for the handling, disclosure and use of such property and the acquisition of written non-disclosure agreements from every party receiving such property. No Confidential Intellectual Property has been made available to any party except employees or contractors of DKI who have signed a confidentiality agreement in substantially the form attached to Schedule 3.16(b) and who have taken customary, necessary or reasonable steps to prevent disclosure of such property. Schedule 3.16(b)of the DKI Disclosure Schedule lists all locations at which backup copies of Confidential Intellectual Property have ever been stored, and DKI has arranged for Adaptec to recover or destroy any such copies following the Closing. Schedule 3.16(b) also lists all individuals or entities that currently have a copy of or access to any Confidential Intellectual Property other than on the premises of DKI's main office and lists all individuals or entities with a copy of or access to any significant portion of DKI's computer source code. (c) Intellectual Property Licenses. Schedule 3.16(c) of the DKI Disclosure Schedule identifies each item of Intellectual Property that any third party owns, in whole or in part, which is incorporated in or forms part of any product licensed, sold, developed or being developed by DKI or is otherwise used in DKI's business, and a list of all rights granted to DKI to use, or to allow DKI's customers or licensees to use such Intellectual Property of any such third party or to modify or incorporate such Intellectual Property in any such products, other than end-user licenses related to "off the shelf," shrink-wrap commercial business productivity software products not incorporated in any way in any product licensed, sold, developed or being developed by DKI (herein referred to as "Third Party Licenses"). DKI is not, nor will it or Adaptec be, as a result of the execution and delivery of this Agreement or the performance of either DKI's or Adaptec's obligations under this Agreement, in violation of any Third Party Licenses. Schedule 3.16(c) includes a list of, and DKI has provided Adaptec with a copy of, all licenses, sublicenses, agreements or permissions with respect to any Intellectual Property owned or used by DKI or to which DKI is bound. DKI has a license, sublicense, agreement or permission allowing DKI to make, use and sell products based on each item of Intellectual Property identified on Schedule 3.16(c). -14- 15 (d) Ownership and Transfer of Intellectual Property. With respect to each item of Intellectual Property owned or used by DKI; (i) DKI possesses, and as of the Effective Time, Adaptec and DKI will possess, all right, title and interest in and to the item, free and clear of any Security Interest, license, except as set forth on Schedule 3.16(d), or other restriction; (ii) DKI is, and as of the Effective Time, Adaptec or DKI will be, the sole and exclusive owner of such item; (iii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling or charge; (iv) no action, suit, litigation, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or threatened which relates to or challenges the legality, validity, enforceability, use or ownership of the item; (v) DKI has never agreed to indemnify any person for or against any interference, infringement, misappropriation, or other conflict with respect to such item; and (vi) neither the Merger nor the transactions contemplated hereby will affect the legality or validity of such item or result in any event which impairs Adaptec's or DKI's ownership of such item following the Merger. As of the Effective Time, Adaptec or DKI will have sufficient title and ownership of all Intellectual Property, except as set forth on Schedule 3.16(d), that is used in DKI's business or is necessary for the commercial exploitation of any products which DKI has licensed, sold or developed or is developing without breach of any contractual obligation or any conflict with or infringement of the rights of others. (e) Intellectual Property Infringement. DKI has not interfered with, infringed upon, misappropriated or violated any Intellectual Property rights of third parties in any respect, and none of the directors, officers or employees of DKI has received during the last three years any charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation, or violation, including without limitation, any claim that DKI must license or refrain from using any Intellectual Property rights of any third party. No third party has interfered with, infringed upon, misappropriated, or violated any Intellectual Property rights owned by DKI. None of DKI's employees, consultants, directors or third party contractors is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that could conflict or interfere with the conduct of the business of DKI as now conducted or as proposed to be conducted by Adaptec or DKI or that could interfere with the ability of Adaptec or DKI to use, license or sell the products licensed, sold, developed or being developed by DKI. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not conflict with or result in a material breach of the terms, conditions or provisions of, or constitute a material default under, any contract, covenant or instrument under which any of such employees, consultants or directors is now obligated. Except for Third Party Licenses set forth on Schedule 3.16(c), the conduct of DKI's business and the sale or license of products licensed, sold, developed or being developed by DKI does not require the use of any Intellectual Property of any third party, including without limitation, any former employer of any past or present employees, consultants or directors of DKI. DKI is not using any confidential information or trade secrets of any third party, including without limitation, any former employer of any past or present employees, consultants or directors of DKI or any party which was in a confidential relationship with any such former employer. All of the Intellectual Property owned by DKI has been created by employees or consultants of DKI within the scope of their employment by or consulting relationship with DKI and such employees or consultants executed valid and binding agreements in the form attached to Schedule 3.16(e) assigning all of their entire right, title and interest in the Intellectual Property to DKI. -15- 16 (f) Computer Software. Schedule 3.16(f) contains a block diagram of the architecture of the software and firmware being developed by DKI or being incorporated into its product under development and a directory listing of such software and firmware. Except for Third Party Licenses, all software and firmware identified in Schedule 3.16(f) is owned by DKI. The software identified in Schedule 3.16(f) includes the only computer software licensed, sold, developed or being developed by DKI. With respect to all computer software included in the Intellectual Property owned by DKI, DKI maintains documentation setting forth in reasonable detail all of the functions of such software. DKI maintains suitable technical and user documentation for all such software and adequate comments within its source code to allow such software to be maintained and modified without undue burden by reasonably competent programmers or engineers skilled in the art who have access to such documentation and source code. Each item of the Intellectual Property owned by DKI consisting of software operates in accordance with the current product specification therefor without material operating defects, except as set forth in software bug reports provided to Adaptec. Schedule 3.16(f) sets forth the schedule of major milestones to be accomplished with respect to each product in development by DKI. DKI has no reason to believe that its product development plans will not proceed in accordance with such schedule. None of the Intellectual Property owned by DKI consisting of software contains any calls to subroutines, libraries or application programming interfaces ("APIs") of any operating systems or third-party software except calls which are documented in the standard documentation generally provided to customers with such subroutines, libraries or APIs, and DKI has a complete set of all such documentation. 3.17 No Products. DKI has not sold any products and has not had any customers or licensees other than Adaptec. 3.18 Selected Contracts. Schedule 3.18 of the DKI Disclosure Schedule lists the following contracts, agreements, commitments and other arrangements to which DKI is a party or by which it or any of its assets is bound: (a) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $25,000 per annum; (b) any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year or involve consideration in excess of $25,000 per annum; (c) any agreement for the purchase of supplies, components, products or services from single source suppliers, custom manufacturers or subcontractors; (d) any agreement concerning a partnership or joint venture; (e) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money or any capitalized lease obligation or under which it has imposed a Security Interest on any of its assets, tangible or intangible; - 16 - 17 (f) any agreement concerning confidentiality, noncompetition or restraint of trade; (g) any agreement with any of DKI's shareholders, optionholders, or any of such Affiliates (other than DKI) or with any Affiliate of DKI; (h) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other similar plan or arrangement for the benefit of its current or former directors, officers, and employees; (i) any collective bargaining agreement; (j) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis; (k) any agreement under which DKI has advanced or loaned any amount to any of its directors, officers, and employees; (l) any agreement under which a default or termination could reasonably be expected to have a DKI Material Adverse Effect; (m) any agreement with any original equipment manufacturer entered into or performed by DKI within the last three years; (n) any agreement regarding product design, development, manufacture, delivery, maintenance, support, service or training; (o) any standard form agreement used by DKI, including, but not limited to, any purchase order, statement of standard terms and conditions of sale, or employment offer letter; (p) any powers of attorney given by DKI; and (q) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $25,000 or which is material to DKI. DKI has made available to Adaptec a correct and complete copy of each written agreement listed in Schedule 3.18 of the DKI Disclosure Schedule and a written summary setting forth the terms and conditions of each oral agreement referred to in Schedule 3.18 of the DKI Disclosure Schedule. With respect to each such agreement, each lease or sublease listed on Schedule 3.15, each license listed on Schedule 3.16(c) and each insurance policy listed on Schedule 3.21: (i) the agreement or other item is legal, valid, binding, enforceable, and in full force and effect in all respects, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws and equitable principles relating to or limiting creditors rights generally; (ii) to the best of DKI's knowledge, no party is in breach or default, and no event has occurred, which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under the agreement; (iii) to the best of DKI's knowledge, no party has repudiated any provision thereof; (iv) there are no -17- 18 disputes, oral agreements, or forbearance programs in effect; (v) DKI has not assigned, transferred, mortgaged, deeded in trust or encumbered any interest therein; and (vi) to the best of DKI's knowledge, all approvals of governmental authorities (including licenses and permits) required in connection therewith and whose failure to have been obtained could reasonably be expected to have a Material Adverse Effect have been obtained. 3.19 Notes and Accounts Receivable. All notes and accounts receivable of DKI, all of which are reflected properly on the books and records of DKI, are valid receivables subject to no setoffs, defenses or counterclaims and are collectible. 3.20 Bank Accounts. Schedule 3.20 lists all bank accounts of DKI, the authorized signatories to the account and the name and telephone number of a contact person with respect to such account. 3.21 Insurance. Schedule 3.21 of the DKI Disclosure Schedule sets forth a true and complete list of its current insurance policies, including names of carriers, amounts of coverage and premiums therefore. DKI believes that it has and is insured with respect to its properties and the conduct of its business in such amounts and against such risks as are reasonable in relation to its business and will use its reasonable efforts to maintain such insurance at least through the Effective Time. DKI has made available to Adaptec true and complete copies of all insurance policies covering DKI and its properties, assets, employees or operations. 3.22 Employees. (a) DKI does not have any employment contracts or consulting agreements currently in effect that are not terminable at will (other than agreements with the sole purpose of providing for the confidentiality of proprietary information or assignment of inventions). (b) Schedule 3.22(b) lists each employment, severance or other similar contract, arrangement or policy and each plan or arrangement (written or oral) providing for insurance coverage (including any self-insured arrangements), workers' benefits, vacation benefits, severance benefits, disability benefits, death benefits, hospitalization benefits, retirement benefits, deferred compensation, profit-sharing, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement insurance, compensation or benefits for employees, consultants or directors which (i) is entered into, maintained or contributed to, as the case may be, by DKI and (ii) covers any employee or former employee of DKI. Such contracts, plans and arrangements as are described in this Section 3.22(b) are herein referred to collectively as the "DKI Benefit Arrangements." Each DKI Benefit Arrangement or Employee Benefit Plan has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations which are applicable to such DKI Benefit Arrangement or Employee Benefit Plan. DKI has delivered to Adaptec or its counsel a complete and correct copy or description of each DKI Benefit Arrangement or Employee Benefit Plan. (c) Since December 31, 1995, there has been no amendment to, written interpretation or announcement (whether or not written) by DKI relating to, or change in employee participation or coverage under, any DKI Benefit Arrangement or Employee Benefit -18- 19 Plan that would increase materially the expense of maintaining such DKI Benefit Arrangement or Employee Benefit Plan above the level of the expense incurred in respect thereof for the fiscal year ended December 31, 1995. (d) DKI has provided, or will have provided prior to the Closing, to individuals entitled thereto all required notices and coverage, if any, pursuant to Section 4980B of the Code and the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring prior to and including the Closing Date, and no material tax payable on account of Section 4980B of the Code has been incurred with respect to any current or former employees (or their beneficiaries) of DKI. (e) No benefit payable or which may become payable by DKI pursuant to any DKI Benefit Arrangement or Employee Benefit Plan or as a result of or arising under this Agreement shall constitute an "excess parachute payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the imposition of an excise tax under Section 4999 of the Code or which would not be deductible by reason of Section 280G of the Code. (f) DKI is in compliance in all material respects with all applicable laws, agreements and contracts relating to employment, employment practices, wages, hours, and terms and conditions of employment, including, but not limited to, employee compensation matters, but not including ERISA. DKI has no reason to believe it does not have good labor relations; nothing has come to DKI's attention as a result of the negotiation or entering into this Agreement that would lead DKI to believe that the consummation of the transactions contemplated hereby will have a DKI Material Adverse Effect on labor relations; and DKI has no knowledge that any of its or their key employees intends to leave its or their employ. (g) No employee of DKI is in violation of any term of any employment contract, patent disclosure agreement, noncompetition agreement, or any other contract or agreement, or any restrictive covenant relating to the right of any such employee to be employed thereby, or to use trade secrets or proprietary information of others, and the employment of such employees does not subject DKI to any liability. DKI knows of no grievance of any DKI employee with respect to which the aggrieved employee, or his or her representative, has discussed or threatened legal action against the DKI. (h) A list of all employees, officers and consultants of DKI and their current compensation (including salary, bonus or commission arrangements or other contingencies) has previously been delivered to Adaptec. (i) DKI is not a party to any (i) agreement with any executive officer or other key employees thereof (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving DKI in the nature of any of the transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee, or (C) providing severance benefits or other benefits after such termination of employment; or (ii) agreement or plan, including, without limitation, any stock option plan, stock appreciation rights plan or stock purchase plan, any of the benefits of which will be materially increased, or the vesting of benefits of which will be materially accelerated, by -19- 20 the occurrence of any of the transactions contemplated by this Merger or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Merger. 3.23 Employee Benefits. (a) Schedule 3.23 of the DKI Disclosure Schedule lists each Employee Benefit Plan that DKI maintains or to which DKI contributes or is obligated to contribute. (i) Each such Employee Benefit Plan (and each related trust, or fund established by DKI) complies in form and in operation in all material respects with their terms, the applicable requirements of ERISA, the Code, and other applicable laws. (ii) All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-l's, and Summary Plan Descriptions) have been filed or distributed with the Internal Revenue Service and/or the Department of Labor, as the case may be, with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title 1 of ERISA and of Code Section 4980B have been met in all respects with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. No event has occurred and no condition exists with respect to any Employee Benefit Plan that would subject DKI to any tax under Code Sections 4972, 4976 or 4979 or to a fine under ERISA Sections 502(i) or 502(l). (iii) All contributions, premiums or other payments (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Employee Benefit Plan and all contributions, premiums or other payments for any period ending on or before the Closing Date which are not yet due shall been paid to each such Employee Benefit Plan or shall be accrued in accordance with the custom and practice of DKI. (iv) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan and which is intended to qualify under Code Section 401(a), has received a favorable determination letter from the Internal Revenue Service with respect to the qualification of the plan under Code Section 401(a) and the exemption of any corresponding trust under Code Section 501, unless the Internal Revenue Service is deemed to have approved the form of such Plan under applicable IRS Revenue Procedures. A copy of the most recent such determination letter with respect to each Employee Benefit Plan has been provided to Adaptec and nothing has occurred since the date of each such determination letter that would cause such Employee Pension Benefit Plan to lose its ability to rely on such letter. Each Employee Pension Benefit Plan has been amended or restated to comply with the 1986 Tax Reform Act and subsequent applicable tax legislation to the extent required by governing tax law, disregarding any statutory or regulatory requirements with respect to which the due date for timely compliance has not yet occurred. A copy of any determination letters applicable to such amendment or restatement which have been received by DKI has been provided to Adaptec. (v) Neither DKI nor any other Person or entity under common control with DKI within the meaning of Section 414(b),(c) or (m) of the Code and the regulations thereunder has now or at any previous time, maintained, established, sponsored, participated in, or contributed to, any Employee Pension Benefit Plan that is subject to Part 3 of Subtitle B of -20- 21 Title I of ERISA, Title IV of ERISA or Section 412 of the Code. No Employee Benefit Plan constitutes, or has constituted, a Multiemployer Plan. No Employee Welfare Benefit Plan or other Employee Benefit Plan providing welfare benefits is funded with a trust or other funding vehicle, other than insurance policies or contracts with a health maintenance organization or similar health care delivery entity. (vi) DKI has made available to Adaptec correct and complete copies of the current plan documents, and the most recent summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, if any, the most recent Form 5500 Annual Report, and the current version of all related trust agreements, insurance contracts, and other funding agreements which implement each maintained Employee Benefit Plan. The terms of any such documentation or other communication permit Adaptec to amend or terminate any such Employee Benefit Plan without penalty. (b) With respect to each Employee Benefit Plan that DKI, and/or any controlled group of corporations within the meaning of Code Section 1563 (a "Controlled Group of Corporations") which includes DKI, maintains or ever has maintained or to which any of them contributes, ever contributed, or ever has been required to contribute: (i) There have been no prohibited transactions within the meaning of ERISA Section 406 and Code Section 4975 with respect to any such Employee Benefit Plan. No fiduciary within the meaning of ERISA Section 3(21) (a "Fiduciary"), has any liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or, to the best of DKI's knowledge, threatened. (c) DKI does not maintain or contribute to, has never maintained or contributed to, and has never been required to contribute to, any Employee Welfare Benefit Plan or any other Employee Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for current or future retired or terminated employees, their spouses, or their dependents (other than in accordance with Code Section 4980B or Part 6 of Subtitle B of Title I of ERISA). (d) There is no liability in connection with any Employee Benefit Plan that is not fully disclosed or provided for on DKI's June 30, 1996 balance sheet for which disclosure would be required under generally accepted accounting principles. (e) No Employee Benefit Plan or DKI has any liability to any plan participant, beneficiary or other person by reason of the payment of benefits or the failure to pay benefits with respect to benefits under or in connection with any such Employee Benefit Plan, other than claims in the normal administration of such plans. 3.24 Guaranties. DKI is not a guarantor or otherwise responsible for any liability or obligation (including indebtedness) of any other Person. -21- 22 3.25 Environment, Health, and Safety. (a) For purposes of this Agreement, the following terms have the following meanings: (i) "Environmental, Health, and Safety Laws" means any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, plans, injunctions, judgments, decrees, requirements or rulings now or hereafter in effect, imposed by any governmental authority regulating, relating to, or imposing liability or standards of conduct relating to pollution or protection of the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), public health and safety, or employee health and safety, concerning any Hazardous Materials or Extremely Hazardous Substances, as such terms as defined herein, or otherwise regulated, under any Environmental, Health and Safety Laws. The term "Environmental, Health and Safety Laws" shall include, without limitation, the Clean Water Act (also known as the Federal Water Pollution Control Act). 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act. 15 U.S.C. Section 2601 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136 et seq., the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., the Superfund Amendment and Reauthorization Act of 1986, Public Law 99-4, 99, 100 Stat. 1613, the Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., and the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., all as amended, together with any amendments thereto, regulations promulgated thereunder and all substitutions thereof. (ii) "Extremely Hazardous Substance" means a substance on the list described in Section 302 (42 U.S.C. Section 11002(a)(2)) of the Emergency Planning and Community Right to Know Act, 42 U.S.C. Section 11001 et seq., as amended. (iii) "Hazardous Material" means any material or substance that, whether by its nature or use, is now or hereafter defined as a pollutant, dangerous substance, toxic substance, hazardous waste, hazardous material, hazardous substance or contaminant under any Environmental, Health and Safety Laws, or which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and which is now or hereafter regulated under any Environmental, Health and Safety Laws, or which is or contains petroleum, gasoline, diesel fuel or other petroleum hydrocarbon product. (b) DKI (i) has complied with the Environmental, Health, and Safety Laws in all material respects (and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, directive or notice has been filed or commenced against it alleging any such failure to comply); (ii) has obtained and been in compliance in all material respects with all of the terms and conditions of all permits, licenses, certificates and other authorizations which are required under the Environmental, Health, and Safety Laws; and (iii) has complied in all respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in the Environmental, Health, and Safety Laws. - 22 - 23 (c) DKI has no liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), and DKI has not handled or disposed of any Hazardous Materials or extremely Hazardous Substances, arranged for the disposal of any Hazardous Materials or Extremely Hazardous Substances, exposed any employee or other individual to any Hazardous Materials or Extremely Hazardous Substances, or owned or operated any property or facility in any manner that could give rise to any liability, for damage to any site, location, surface water, groundwater, land surface or subsurface strata, for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law. (d) No Extremely Hazardous Substances are currently, or have been, located at, on, in, under or about all properties and equipment used in the business of DKI and its Affiliates. (e) No Hazardous Materials are currently located at, on, in, under or about all properties and equipment used in the business of DKI and its Affiliates in a manner which violates any Environmental, Health and Safety Laws or which requires cleanup or corrective action of any kind under any Environmental, Health and Safety Laws. 3.26 Corporate Documents. DKI has made available to Adaptec or its counsel for examination all documents and information listed in the DKI Disclosure Schedule or other Exhibits called for by this Agreement which has been requested by Adaptec's legal counsel, including, without limitation, the following: (a) copies of DKI's Amended and Restated Articles of Incorporation and Bylaws as currently in effect; (b) its Minute Book containing records of proceedings, consents, actions, and meetings of the stockholders, the DKI Board of Directors and any committees thereof that have taken place; (c) its stock ledger and journal reflecting all stock issuances and transfers; (d) all permits, orders, and consents issued by any regulatory agency with respect to DKI, or any securities of DKI, and all applications for such permits, orders, and consents; and (e) all amendments, supplements, modifications and waivers to all such documents and information. 3.27 Certain Transactions and Agreements. None of the officers of DKI, nor any of their "affiliates" or "associates" (as those terms are defined in Rule 405 promulgated under the Securities Act) or members of their immediate family, has any direct or indirect material interest in (a) any firm or corporation that competes with DKI (except with respect to any interest of less than one percent of the stock of any corporation whose stock is publicly traded), (b) any person or entity which purchases from or sells, licenses or furnishes to DKI any goods, property, technology or intellectual or other property rights or services, (c) any contract or agreement to which DKI is a party or by which it may be bound or affected, except for normal compensation for services as an officer, director or employee of DKI, or (d) any property, real or personal, tangible or intangible, including without limitation Intellectual Property used in or pertaining to the business of DKI, except for the normal rights of a shareholder. 3.28 Associations. DKI is not a member of any organization or association (a) which is developing or proposes to develop standards relating to any Intellectual Property owned by DKI, (b) imposes or is contemplating the imposition on its members of any obligations or limitations - 23 - 24 on such members to do business or (c) for which such membership or expiration of such membership could have a Material Adverse Effect on DKI. 3.29 No Adverse Developments. To the best of DKI's knowledge, there is no existing or threatened development (exclusive of general economic factors affecting business in general) affecting DKI (or affecting customers, suppliers, employees, and other Persons which have relationships with DKI) that would prevent Adaptec from conducting the business of DKI following the Closing in the manner in which it was conducted or planned to be conducted by DKI prior to the Closing. 3.30 Full Disclosure. No representation or warranty in this Section 3 or in any DKI Ancillary Agreement, and no statement, list, certificate or instrument furnished by DKI identified in this Agreement or in the DKI Disclosure Schedule to Adaptec pursuant hereto or in connection with this Agreement contains any untrue statement of a material fact, or omits to state any fact necessary to make any statements contained herein or therein, in light of the circumstances under which they were made, not materially misleading. 3.31 Information Supplied. None of the information provided or to be provided by DKI for inclusion in the materials to be supplied to the DKI shareholders (the "DKI Shareholder Materials") or to the DKI optionholders (the "DKI 0ptionholder Materials"), at the date such information is supplied, at the Effective Time and, in the case of the DKI Shareholder Material, at the time of the meeting or solicitation of the DKI shareholders to approve the Merger, contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. 3.32 Continued Funding. To DKI's knowledge NFT Ventures, Inc., a Utah corporation ("NFT") has complied in all material respects with that certain Stock Purchase Agreement dated February 28, 1996 (the "NFT Stock Purchase Agreement") and the promissory note of NFT delivered with respect thereto (the "NFT Note"). NFT has no obligation to fund DKI other than as set forth in the NFT Stock Purchase Agreement and the NFT Note. The outstanding principal amount on the NFT Note as of the date hereof is as set forth on Schedule 3.3(a) of the DKI Disclosure Schedule. 4. REPRESENTATIONS AND WARRANTIES OF ADAPTEC AND ADAPTEC SUB Adaptec and Adaptec Sub represent and warrant to DKI and the shareholders and optionholders of DKI immediately prior to the Effective Time that the statements contained in this Section 4 are true, correct and complete as of the date of this Agreement. 4.1 Organization and Good Standing. Each of Adaptec and Adaptec Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and has the corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted and as proposed to be conducted. - 24 - 25 4.2 Power, Authorization and Validity. (a) Each of Adaptec and Adaptec Sub has the right, power, legal capacity and authority to enter into and perform its obligations under this Agreement, and all agreements to which it is or will be a party that are required to be executed pursuant to this Agreement (the Adaptec Ancillary Agreements"). The execution, delivery and performance of this Agreement and the Adaptec Ancillary Agreements have been duly and validly approved and authorized by the Board of Directors of Adaptec and/or Adaptec Sub, as appropriate. (b) No filing, authorization or approval, governmental or otherwise, on behalf of Adaptec or Adaptec Sub is necessary to enable Adaptec or Adaptec Sub to enter into, and to perform their obligations under, this Agreement and the Adaptec Ancillary Agreements, except for (i) the filing of the Agreement of Merger with the California Secretary of State, and the filing of appropriate documents with the relevant authorities of other states in which Adaptec or Adaptec Sub is qualified to do business, if any; (ii) such filings as may be required to comply with federal and state securities laws; and (iii) the filings required by the HSR Act. (c) This Agreement and the Adaptec Ancillary Agreements are, or when executed by Adaptec and Adaptec Sub will be, valid and binding obligations of Adaptec and Adaptec Sub, as appropriate, enforceable in accordance with their respective terms, except as to the effect, if any, of (i) applicable bankruptcy and other similar laws affecting the rights of creditors generally, (ii) rules of law governing specific performance, injunctive relief and other equitable remedies and (iii) the enforceability of provisions requiring indemnification in connection with the offering, issuance or sale of securities; provided, however, that the Agreement of Merger will not be effective until filed with the California Secretary of State. 4.3 No Violation of Existing Agreements. Neither the execution and delivery of this Agreement nor any Adaptec Ancillary Agreement, nor the consummation of the transactions contemplated hereby, will conflict with, or (with or without notice or lapse of time, or both) result in a termination, breach, impairment or violation of (a) any provision of the Amended and Restated Articles of Incorporation or Bylaws of Adaptec or Adaptec Sub, as currently in effect or (b) any federal, state, local or foreign judgment, writ, decree, order, statute, rule or regulation applicable to Adaptec, Adaptec Sub or their assets or properties. 4.4 Disclosure. Adaptec has delivered to DKI a disclosure package consisting of Adaptec's annual report on Form 10-K for its fiscal year ending March 31, 1996 (the "Fiscal Year End"), all Forms 10-Q and 8-K filed by Adaptec with the SEC since the Fiscal Year End and up to the date of this Agreement and all proxy materials distributed to Adaptec's shareholders since the Fiscal Year End and up to the date of this Agreement (the "Adaptec Disclosure Package"). Adaptec hereby acknowledges that the Adaptec Disclosure Package will be incorporated in the DKI Shareholder Materials and the DKI Optionholder Materials. As of the date hereof, the date of the DKI shareholder solicitation and the Effective Time, the Adaptec Disclosure Package, this Agreement, all exhibits and schedules hereto, other than the DKI Disclosure Schedule and Schedules provided with respect to Section 3 hereof, and any certificates or documents to be delivered by Adaptec to DKI pursuant to this Agreement, when taken together, do not contain any untrue statement of a material fact or omit to state any material - 25 - 26 fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which such statements were made, not misleading. 4.5 Absence of Certain Changes. Since the Fiscal Year End, there has not been any change in the financial condition, properties, assets, liabilities, business or operations of Adaptec or Adaptec Sub which change by itself or in conjunction with all other such changes, whether or not arising in the Ordinary Course of Business, has had or will have an Adaptec Material Adverse Effect thereon except as disclosed in the Adaptec Disclosure Package. 4.6 Brokers' Fees. With the exception of its obligations to Unterberg Harris, Adaptec and Adaptec Sub have no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. 4.7 Adaptec Options. As of the Effective Time the shares of Adaptec Common Stock issuable upon exercise of the Adaptec Options will have been authorized and reserved, and when issued against payment therefore, will be validly issued, fully paid, non-assessable and free from pre-emptive rights. 4.8 No Intention to Relocate. Adaptec has no current intention to move DKI more than 30 miles from its current Nashua, New Hampshire location. 5. DKI COVENANTS During the period (a) with respect to Sections 5.1 through 5.15, from the date of this Agreement until the Effective Time, and (b) with respect to Section 5.16, after the Effective Time, DKI covenants and agrees as follows: 5.1 Advice of Changes. DKI will promptly advise Adaptec in writing (a) of any event occurring subsequent to the date of this Agreement that would render any representation or warranty of DKI contained in this Agreement, if made on or as of the date of such event or the Closing Date, untrue or inaccurate in any material respect and (b) of any Material Adverse Change. To ensure compliance with this Section 5.1, DKI shall deliver to Adaptec within fifteen (15) days after the end of each monthly accounting period ending after the date of this Agreement and before the Closing Date, an unaudited balance sheet and statement of operations, which financial statements shall be prepared in accordance with DKI's books and records and generally accepted accounting principles and shall fairly present the financial position of DKI as of their respective dates and the results of DKI's operations for the periods then ended. 5.2 Maintenance of Business. DKI will use its best efforts to carry on and preserve its business and its relationships with customers, suppliers, employees and others in substantially the same manner as it has prior to the date hereof. If DKI becomes aware of a material deterioration in the relationship with any customer, supplier or employee, it will promptly bring such information to the attention of Adaptec in writing and, if requested by Adaptec, will exert its best efforts to restore the relationship. 5.3 Conduct of Business. Except as set forth in Schedule 5.3, DKI will continue to conduct its business and maintain its business relationships in the Ordinary Course of Business -26- 27 and will not, without the prior written consent of Adaptec, do any of the following except for transactions explicitly contemplated by this Agreement in connection with the Merger: (a) incur any indebtedness for borrowed money in an amount exceeding $25,000 or issue or sell any debt securities; (b) enter into any transaction not in the Ordinary Course of Business and not exceeding $25,000 in amount, except the incurrence or payment of legal and accounting fees in connection with the Merger and the transactions contemplated hereby; (c) encumber or permit to be encumbered any of its assets except in the Ordinary Course of Business consistent with past practice and to an extent which does not exceed $25,000; (d) dispose of any of its assets except in the Ordinary Course of Business consistent with past practice; (e) enter into any lease or contract for the purchase or sale of any property, real or personal, except in the Ordinary Course of Business consistent with past practice and not exceeding $25,000; (f) fail to maintain its equipment and other assets in good working condition and repair according to the standards it has maintained to the date of this Agreement so as to have a DKI Material Adverse Effect; (g) pay any bonus, increased salary or special remuneration to any officer, employee or consultant or enter into any new employment or consulting agreement with any such person; (h) change accounting methods; (i) declare, set aside or pay any cash or stock dividend or other distribution in respect of capital stock, or redeem or otherwise acquire any of its capital stock; (j) amend or terminate any contract, agreement or license to which it is a party except (i) those amended or terminated in the Ordinary Course of Business, and (ii) where the effect of such amendment or termination does not exceed $25,000; (k) lend any amount to any person or entity, other than (i) advances for travel and expenses which are incurred in the Ordinary Course of Business, not in excess of $25,000, and documented by receipts for the claimed amounts or (ii) any loans pursuant to a DKI 401(k) Plan, if any; (l) guarantee or act as a surety for any obligation except for the endorsement of checks and other negotiable instruments in the Ordinary Course of Business, not in excess of $25,000; -27- 28 (m) waive or release any right or claim except in the Ordinary Course of Business, and where the value of such right/claim waived or released does not exceed $25,000; (n) issue or sell any shares of its capital stock of any class (except upon the exercise of an option or warrant currently outstanding), or any other of its securities, or issue or create any warrants, obligations, subscriptions, options, convertible securities, or other commitments to issue shares of capital stock, or accelerate the vesting of any outstanding option or other security; (o) split or combine the outstanding shares of its capital stock of any class or enter into any recapitalization affecting the number of outstanding shares of its capital stock of any class or affecting any other of its securities; (p) merge, consolidate or reorganize with, or acquire any entity; (q) amend its Amended and Restated Articles of Incorporation or Bylaws; (r) license any of its technology or Intellectual Property except (i) in the Ordinary Course of Business, and (ii) for consideration not in excess of $25,000; (s) agree to any audit assessment by any tax authority or file any federal or state income or franchise tax return unless copies of such returns have been delivered to Adaptec for its review prior to filing; (t) change any insurance coverage or issue any certificates of insurance except in the Ordinary Course of Business; or (u) agree to do any of the things described in the preceding clauses 5.3(a) through 5.3(t). 5.4 DKI Shareholder Approval. DKI will hold a special meeting or solicit written consent of its shareholders at the earliest practicable date to submit this Agreement, the Merger and related matters for the consideration and approval of the DKI shareholders. Approval of this Agreement, the Merger and, related matters will be recommended by DKI's Board of Directors and management, and DKI's Board of Directors and management will use best efforts to obtain such approval from all DKI shareholders. Any meeting will be called, held and conducted, and any proxies or shareholder written consents will be solicited, in compliance with applicable law. Concurrently with the execution of this Agreement, DKI will have caused all of the shareholders whose signature line appears on Exhibit 5.4 to execute an agreement in the form of Exhibit 5.4 agreeing, among other things, to vote in favor of the Merger. 5.5 Shareholder and Optionholder Materials. DKI will send to its shareholders in a timely manner, for the purpose of considering and voting upon the Merger, the DKI Shareholder Materials and shall provide a copy of such material to Adaptec and its counsel. DKI shall be solely responsible for any statement, information or omission in the DKI Shareholder Materials relating to it or its affiliates based upon written information furnished by it. DKI will send to its optionholders in a timely manner, for the purpose of receiving their consent to the assumption of the DKI Options with Adaptec Options, the DKI Optionholder Materials in form and substance - 28 - 29 reasonably satisfactory to Adaptec and necessary or desirable to satisfy all requirements of applicable law, including without limitation, federal securities law. 5.6 Regulatory Approvals. DKI will execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign which may be reasonably required, or which Adaptec may reasonably request, in connection with the consummation of the transactions contemplated by this Agreement, including but not limited to the filing relating to the HSR Act (the "HSR Filing") pursuant to Section 2.8 of this Agreement. DKI will use its best efforts to obtain all such authorizations, approvals and consents. 5.7 No Solicitation. Until September 30, 1996 or the earlier mutual abandonment of the transactions contemplated by this Agreement, DKI will not, and will not authorize any officer or director of DKI or any other person on its behalf to, solicit, encourage, entertain discussions, negotiate or accept any offer from any party concerning the possible disposition of all or any substantial portion of DKI's business, assets or capital stock by merger, sale or any other means or any other transaction that would involve a change in control of DKI, provided, however, that DKI's Board of Directors shall not be precluded from responding to an unsolicited offer that is superior to the Merger terms provided herein, provided the DKI Board of Directors first receives advice of counsel that under its fiduciary duty it must act upon such offer. DKI will promptly notify Adaptec in writing of any inquiries or proposals by other parties. 5.8 Access. Until the Closing, DKI will allow Adaptec and its agents reasonable access during normal business hours to all files, books, records, offices and assets of DKI, including, without limitation, any and all information relating to DKI's taxes, commitments, contracts, leases, licenses, computer software (including source code), real, personal and intangible property and financial condition. DKI will cause its accountants to cooperate with Adaptec and its agents in making available all financial information reasonably requested, including without limitation the right to examine all working papers pertaining to all financial statements prepared or audited by such accountants. 5.9 Satisfaction of Conditions Precedent. DKI will use its best efforts to satisfy or cause to be satisfied all the conditions precedent which are set forth in Section 9, and DKI will use its best efforts to cause the transactions contemplated by this Agreement to be consummated, and, without limiting the generality of the foregoing, to obtain all consents and authorizations of third parties and to make all filings with, and give all notices to, third parties that may be necessary or reasonably required on its part in order to effect the transactions contemplated hereby. 5.10 Employment: Non-Competition Agreements. DKI shall obtain from each employee listed on Schedule 5.10 hereto an employment agreement or an employment offer letter which may include an agreement not to compete with the business of DKI or Adaptec (or any successor corporations) in substantially the forms attached to Schedule 5.10, as designated on such Schedule. - 29 - 30 5.11 Blue Sky Laws. DKI shall use its best efforts to assist Adaptec to the extent necessary to comply with the securities and Blue Sky laws of all jurisdictions which are applicable in connection with the Merger. 5.12 Amendment and Assumption of Options. DKI and its Board of Directors will take such actions as are necessary or appropriate to provide for the assumption of the DKI Options with the Adaptec Options, including without limitation the obtaining of consents to such assumption by DKI's optionholders in substantially the form attached hereto as Exhibit 2.3 and such actions as are necessary or appropriate to provide that the Merger and the transactions contemplated hereby will not cause accelerated vesting of any DKI Option. 5.13 Prohibited Securities Trading. DKI will take reasonable actions to prevent trading in Adaptec Common Stock by DKI's officers, directors, employees and agents that would be based on non-public information. 5.14 Supplements to Disclosure Schedule. From time to time prior to the Effective Time, DKI will supplement or amend the DKI Disclosure Schedule with respect to any matter which if existing or occurring or known to DKI at the date of this Agreement, would have been required to be set forth on such DKI Disclosure Schedule or which is necessary to correct any information in the DKI Disclosure Schedule which is rendered inaccurate thereby. No supplement or amendment to the DKI Disclosure Schedule shall have any effect for the purpose of determining satisfaction of the condition to Closing set forth in Section 9.1 of this Agreement, but any such supplement or amendment shall be deemed to be incorporated into DKI's representations and warranties in the event of the Closing of the Merger. 5.15 Amendment of Option Plan. DKI shall amend the DKI Plan and receive the approval of (i) DKI's Board of Directors and (ii) all optionees holding outstanding DKI Options, to amend Article Two, Sections III.A and III.B of the DKI Plan to provide for the assumption of options in a merger in the manner contemplated in this Agreement. In connection with the approval sought in (ii) above, DKI shall forward the DKI Optionholder Materials to each holder of DKI Options prior to approval by such Optionholder, which disclosure statement shall comply with all applicable laws and contained no material misstatements or omissions. 5.16 Further Assurances. In case at any time after the Effective Time any further action is reasonable and necessary or desirable to carry out the purposes of this Agreement or to vest the surviving corporation with full title to all properties, assets, rights, approvals, immunities and franchises of DKI, the officers and directors of DKI shall take all such reasonable and necessary action. 6. ADAPTEC COVENANTS During the period (a) with respect to Sections 6.1 through 6.6, from the date of this Agreement until the Effective Time, and (b) with respect to Section 6.7, after the Effective Time, Adaptec covenants and agrees as follows: 6.1 Advice of Changes. Adaptec will promptly advise DKI in writing (a) of any event occurring subsequent to the date of this Agreement that would render any representation or warranty of Adaptec contained in this Agreement, if made on or as of the date of such event or -30- 31 the Closing Date, untrue or inaccurate in any material respect and (b) of any Material Adverse Change in Adaptec's business, results of operations or financial condition. 6.2 Regulatory Approvals. Adaptec will execute and file, or join in the execution and filing, of any application or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental body, federal, state, local or foreign, which may be reasonably required, or which DKI may reasonably request, in connection with the consummation of the transactions contemplated by this Agreement, including but not limited to the HSR Filing pursuant to Section 2.8 of this Agreement. Adaptec will use its best efforts to obtain all such authorizations, approvals and consents. 6.3 Blue Sky Laws. Adaptec shall take such steps as may be necessary to comply with the securities and Blue Sky laws of all jurisdictions which are applicable in connection with the Merger. 6.4 Materials. Adaptec will furnish DKI with all information concerning Adaptec, its subsidiaries, directors, officers, shareholders and the Adaptec Options as may be reasonably necessary for the DKI Shareholder Materials or the DKI Optionholder Materials. Adaptec shall be responsible for any statement, information or omission in any material Adaptec provides to DKI specifically for inclusion in the DKI Shareholder Materials or DKI Optionholder Materials. 6.5 Subsequent SEC Filings. Adaptec shall provide DKI with a true and complete copy of any document it files with the SEC prior to the Effective Time. 6.6 Nasdaq National Market. Adaptec will file an additional notification with The Nasdaq National Market to approve for listing, subject to official notice of its issuance, the shares of Adaptec Common Stock to be issued upon exercise of the Adaptec Options. Adaptec shall exercise reasonable good faith efforts to cause such shares to be approved for listing on The Nasdaq National Market, subject only to official notice of issuance, prior to the Effective Time. 6.7 Continuation of Benefits. Adaptec shall make available to employees of DKI who become employed by Adaptec after the Merger the same Employee Benefit Plans as are generally available to similarly situated employees of Adaptec, and, where Adaptec deems appropriate, Adaptec will take into consideration prior service with DKI when determining benefits available to such former employees of DKI. 7. CLOSING MATTERS 7.1 The Closing. Subject to termination of this Agreement as provided in Section 10 below, the closing of the Merger and the transactions contemplated hereby (the "Closing") will take place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94306 at 9:00 a.m., local time on September __, 1996 or, if all conditions to closing have not been satisfied or waived by such date, such other place, time and date as DKI and Adaptec may mutually select (the "Closing Date"). Concurrently with the Closing, the Agreement of Merger will be filed in the office of the California Secretary of State. The Agreement of Merger provides that the Merger shall become effective upon filing. -31- 32 7.2 Exchange of Consideration. (a) As of the Effective Time, each share of DKI Common Stock or DKI Preferred Stock that is outstanding immediately prior thereto, other than Dissenting Shares, will, by virtue of the Merger and without further action, cease to exist and will be converted into the right to receive the consideration specified in Section 2.2 hereof. (b) At the Closing, each holder of shares of DKI Stock will surrender the certificate(s) for such shares (the "DKI Certificates"), duly endorsed as requested by Adaptec, to Adaptec for cancellation and Adaptec will issue to each tendering holder of DKI Certificate(s) the Per Share Cash Consideration less the Per Share Holdback Amount, multiplied by the number of shares set forth on such DKI Certificates, to which such holder is entitled pursuant to Section 2.2 (each such payment to each tendering holder of DKI Certificates, an "Initial Payment"). (c) To the extent the Holdback Amount is not used to satisfy Claims, as defined below, pursuant to Sections 3, 5 or 11 hereof, the Holdback Amount, less any amount which is the subject of an outstanding Claim, will be paid, promptly after the completion of the Holdback Period, to all tendering holders of DKI Certificates pro rata according to the amount of the Initial Payment received by such tendering holder (or in the event of an assignment, by the initial holder who received the initial payment) (such pro rata payment, the "Holdback Payment"). To the extent any portion of the Holdback Amount is not distributed after the completion of the Holdback Period because of outstanding unresolved Claims, any portion of the Holdback Amount remaining after resolution of such Claims shall be paid to all tendering holders of DKI Certificates pro rata according to the amount of the Initial Payment received by such tendering holder. The right to receive payments pursuant to this Section 7.2(c) and Section 2.2(b) shall not be assignable or transferable, except that any Person may assign all such rights of such Person, in their entirety, upon written notice to Adaptec. (d) With respect to any portion of the Holdback Amount which is deducted as a result of a Claim, such portion shall earn simple interest at the rate of five percent (5%) per annum, from the Effective Time through the earlier of (i) the date of the deduction or (ii) the end of the Holdback Period. Any portion of the Holdback Amount which is not deducted as a result of a Claim shall earn simple interest at a rate of five percent (5%) per annum from the Effective Time through the end of the Holdback Period. Any interest earned on the Holdback Amount shall be deemed to be included in the definition of Holdback Amount. Interest shall be calculated on the basis of a 365-day year. (e) All cash amounts delivered upon the surrender of DKI Certificates in accordance with the terms hereof will be deemed to have been delivered in full satisfaction of all rights pertaining to such DKI Stock. If, after the Effective Time, DKI Certificates are presented for any reason, they will be canceled and exchanged for consideration as provided in this Section 7.2. (f) Until certificates representing DKI Stock outstanding prior to the Merger are surrendered pursuant to Section 7.2(b) above, such certificates will be deemed, for all purposes, to evidence the right to receive the consideration set forth in this Section 7.2. -32- 33 7.3 Assumption of Options. At the Closing, each holder of a DKI Option will consent to the amendment of such DKI Option and the assumption of such option by Adaptec, and such DKI optionholder will execute a consent to assumption in substantially the form as Exhibit 2.3 hereto. 8. CONDITIONS TO OBLIGATIONS OF DKI DKI's obligations hereunder are subject to the fulfillment or satisfaction, on and as of the Closing, of each of the following conditions (any one or more of which may be waived by DKI): 8.1 Accuracy of Representations and Warranties. The representations and warranties of Adaptec set forth in Section 4 shall be true and accurate in all material respects on and as of the Closing with the same force and effect as if they had been made at the Closing, and DKI shall receive a certificate to such effect executed by Adaptec's President or Chief Financial Officer. 8.2 Covenants. Adaptec shall have performed and complied in all material respects with all of its covenants contained herein required to be performed on or before the Closing, and DKI shall receive a certificate to such effect signed by Adaptec's President or Chief Financial Officer. 8.3 Compliance with Law. There shall be no order, decree, or ruling by any court or governmental agency or threat thereof, or any other fact or circumstance, which would prohibit or render illegal the transactions contemplated by this Agreement. 8.4 Government Consents. There shall have been obtained at or prior to the Closing Date such permits or authorizations, and there shall have been taken such other action, as may be required to consummate the Merger by any regulatory authority having jurisdiction over the parties and the actions herein proposed to be taken, including but not limited to requirements under applicable federal and state securities laws. 8.5 Opinion of Adaptec's Counsel. DKI shall have received from counsel to Adaptec an opinion in form and substance reasonably satisfactory to DKI and its counsel. 8.6 Documents. DKI shall have received all written consents, assignments, waivers, authorizations or other certificates reasonably deemed necessary by DKI's legal counsel for DKI to consummate the transactions contemplated hereby. 8.7 Requisite Approval. The principal terms of this Agreement and the Agreement of Merger shall have been approved and adopted by Adaptec's Board of Directors, as required by applicable law and Adaptec's Articles of Incorporation and Bylaws. 8.8 Hart-Scott-Rodino Compliance. All applicable waiting periods under the HSR Act shall have expired or early termination shall have been granted by both the Federal Trade Commission and the United States Department of Justice. 8.9 Employment Agreements. DKI or the appropriate employees shall have received copies of the employment agreements set forth in Section 5.11 hereof executed by Adaptec. - 33 - 34 8.10 Nasdaq Additional Shares Notification. The Adaptec Common Stock to be issued pursuant to the exercise of the Adaptec Options shall have been approved for quotation on the Nasdaq National Market, subject only to official notice of issuance by Adaptec. 8.11 Per Share Cash Consideration. Adaptec shall have made provisions to DKI's reasonable satisfaction for the delivery at the Closing by cashier's check or in immediately available funds (which may be effected the following day if not practicable on the Closing Date) of the Per Share Cash Consideration less the Per Share Holdback Amount for each share of DKI Common Stock being exchanged in connection with the Merger and with respect to which a stock certificate and all documentation to be signed by the holder of such share has been surrendered to Adaptec. 9. CONDITIONS TO OBLIGATIONS OF ADAPTEC The obligations of Adaptec hereunder are subject to the fulfillment or satisfaction, on and as of the Closing, of each of the following conditions (any one or more of which may be waived by Adaptec): 9.1 Accuracy of Representations and Warranties. The representations and warranties of DKI set forth in Section 3 shall be true and accurate on and as of the Closing with the same force and effect as if they had been made at the Closing, and Adaptec shall receive a certificate to such effect executed by DKI's President and Chief Financial Officer. 9.2 Covenants. DKI shall have performed and complied with all of its covenants contained herein required to be performed on or before the Closing, and Adaptec shall receive a certificate to such effect signed by DKI's President and Chief Financial officer. 9.3 Absence of Material Adverse Change. There shall not have been, in the reasonable judgment of the Board of Directors of Adaptec, any Material Adverse Change to DKI. 9.4 Compliance with Law. There shall be no order, decree, or ruling by any court or governmental agency or thereof, or any other fact or circumstance, which would prohibit or render illegal the transactions contemplated by this Agreement. 9.5 Government Consents. There shall have been obtained at or prior to the Closing Date such permits or authorizations, and there shall have been taken such other action, as may be required to consummate the Merger by any regulatory authority having jurisdiction over the parties and the actions herein proposed to be taken, including but not limited to requirements under applicable federal and state securities laws. 9.6 Opinion of DKI's Counsel. Adaptec shall have received from counsel to DKI an opinion in form and substance reasonably satisfactory to Adaptec and its counsel. 9.7 Consents. Adaptec shall have received duly executed copies of all material third-party consents, approvals, assignments, waivers, authorizations or other certificates contemplated by this Agreement or reasonably deemed necessary by Adaptec's legal counsel to provide for the continuation in full force and effect of any and all material contracts, licenses, including without limitation those listed on Schedule 3.16(c) hereof, and leases of DKI and for Adaptec to -34- 35 consummate the transactions contemplated hereby in form and substance reasonably satisfactory to Adaptec, except for such thereof as Adaptec and DKI shall have agreed shall not be obtained. 9.8 No Litigation. No litigation or proceeding shall be threatened or pending for the purpose or with the probable effect of enjoining or preventing the consummation of any of the transactions contemplated by this Agreement, or which could be reasonably expected to have a material adverse effect on the present or future operations or financial condition of DKI. 9.9 Requisite Approvals. The principal terms of this Agreement and the Agreement of Merger and the Merger shall have been affirmatively approved and adopted by each of DKI's shareholders and by DKI's Board of Directors, with no shareholders dissenting therefrom. 9.10 Due Diligence. Adaptec shall have completed to its satisfaction its due diligence investigations of DKI and its business, including without limitation, legal, financial, tax and technical reviews of DKI, and shall be satisfied, in its sole discretion, with the results of such reviews and investigations. 9.11 Employment and Non-Competition Agreements. Adaptec shall have received executed copies of the employment agreements, employment offer letters and non-competition agreements set forth in Section 5.10 hereof to Adaptec's satisfaction. Adaptec shall have received confirmation, to its satisfaction, that the employees of DKI intend to continue their employment with DKI following the Merger. 9.12 DKI Plan Matters. The DKI Plan shall have been amended pursuant to Section 5.15 to Adaptec's reasonable satisfaction and each holder of a DKI Option shall have executed a consent in substantially the form as Exhibit 2.3. 9.13 Hart-Scott-Rodino Compliance. All applicable waiting periods under the HSR Act shall have expired or early termination shall have been granted by both the Federal Trade Commission and the United States Department of Justice. 9.14 Termination of Rights. Any registration rights, rights of refusal, rights to any liquidation preference, or redemption rights of any DKI shareholder shall have been terminated or waived as of the Closing. 9.15 FIRPTA: Tax Withholding. Adaptec, as agent for the shareholders of DKI, shall have received (i) a properly executed Foreign Investment and Real Property Tax Act of 1980 ("FIRPTA") Notification Letter, in form and substance satisfactory to Adaptec, which states that shares of DKI Stock do not constitute "United States real property interests" under Section 897(c) of the Code, for purposes of satisfying Adaptec's obligations under Treasury Regulation Section 1.14452(c)(3), and (ii) all such properly completed and executed W-9 or related forms from each DKI shareholder required to notify Adaptec of any federal tax withholding obligation in connection with the Initial Payment and/or the Holdback Payment to such DKI shareholder. 9.16 Internal Revenue Service Notification. DKI shall have provided notification to the Internal Revenue Service required pursuant to Treasury Regulation Section 1.897-2(h)(2). -35- 36 9.17 Resignation of Directors. The directors of DKI in office immediately prior to the Effective Time of the Merger shall have resigned as directors of the surviving corporation of the Merger effective as of the Effective Time of the Merger. 9.18 Satisfactory Form of Legal and Accounting Matters. The form, scope and substance of all legal and accounting matters contemplated hereby and all closing documents and other papers delivered hereunder shall be acceptable to Adaptec's counsel, or Adaptec's financial advisors, specifically including written confirmation by Adaptec's financial advisor that all issues relating to the accounting treatment of DKI's in-process research and development have been resolved to such Adaptec financial advisor's satisfaction. 9.19 Indemnification Letter Agreement. DKI shall have obtained from each of DKI's shareholders an executed letter agreement, in substantially the form attached hereto as Exhibit 9.19 (the "Indemnification Letter"). 9.20 NFT Note. NFT shall have paid the entire outstanding principal amount under the NFT Note, together with all interest accrued thereon, or DKI shall have made provisions for the repayment of such note to Adaptec's satisfaction. 9.21 DKI Stock Certificates. All stock certificates representing Outstanding DKI Stock shall have been delivered to Adaptec properly endorsed for transfer to Adaptec's satisfaction. 10. TERMINATION OF AGREEMENT 10.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) by mutual consent of Adaptec and DKI; (b) by DKI, if the conditions set forth in Section 8 are not complied with or performed and such noncompliance or nonperformance has not been cured or eliminated (or by it nature cannot be cured or eliminated) by Adaptec on or before October 31, 1996; or (c) by Adaptec, if the conditions set forth in Section 9 are not complied with or performed and such noncompliance or nonperformance has not been cured or eliminated (or by it nature cannot be cured or eliminated) by DKI on or before October 31, 1996. Any termination of this Agreement under this Section 10.1 will be effective by the delivery of notice of the terminating party to the other party hereto. 10.2 No Liability. Any termination of this Agreement pursuant to this Section 10 will be without further obligation or liability upon any party in favor of the other party hereto other than the obligations provided in Sections 5.4, 5.7, 11, and 12 of this Agreement; provided, however, that nothing herein will limit the obligations of DKI and Adaptec to use their best efforts to cause the Merger to be consummated, as set forth above. -36- 37 11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING COVENANTS 11.1 Survival of Representations. All representations, warranties and covenants of Adaptec and DKI contained in this Agreement will remain operative and in full force and effect, regardless of any investigation made by or on behalf of the parties to this Agreement, and will survive the Effective Time for a period of eighteen (18) months, except that any representation with respect to tax matters shall survive the Effective Time and will continue until the expiration of its statute of limitations. 11.2 Agreement to Indemnify. Subject to the limitations set forth in this Section 11, holders of the Outstanding DKI Stock immediately prior to the Effective Time (by executing the Indemnification Letter pursuant to Section 9.19 hereof) (each, an "Indemnifying Shareholder") will jointly and severally indemnify and hold harmless Adaptec and its officers, directors, agents and employees, and each person, if any, who controls or may control Adaptec within the meaning of the Securities Act (hereinafter referred to individually as an "Indemnified Person" and collectively as "Indemnified Persons") from and against any and all claims, demands, actions, causes of actions, losses, costs, damages, liabilities and expenses, including without limitation, reasonable legal fees and costs (hereinafter referred to as "Damages"): (a) Arising out of any misrepresentation or breach of or default in connection with any of the representations, warranties and covenants given or made by DKI in this Agreement or any certificate, document or instrument delivered by or on behalf of DKI pursuant hereto (other than with respect to specific changes of which DKI has advised Adaptec in a written update to Schedule 3 delivered prior to the Closing); (b) Resulting from any failure of any DKI shareholders to have good, valid and marketable title to the issued and outstanding DKI Stock held by such shareholders, free and clear of all liens, claims, pledges, options, adverse claims, assessments or charges of any nature whatsoever, or to have full right, capacity and authority to vote such DKI Stock in favor of the Merger and the other transactions contemplated by the Agreement of Merger; or (c) Consisting of legal and accounting fees, costs and/or expenses incurred by DKI in connection with the Merger and the transactions contemplated hereby in excess of the DKI Legal/Accounting Fee Cap (as defined in Section 12.8 hereof): (d) Relating to the termination or severance of any DKI officer or other employee; or (e) Resulting from any unreasonable delay in the release of Adaptec products, which, and only to the extent such, delay is attributable to DKI software. As used in the previous sentence, "unreasonable delay" shall be assessed by reference to the milestone schedule in Schedule 3.16(f) hereof. 11.3 Limitations. Except with respect to Sections 11.2(c) and 11.2(d), the indemnification provided for in Section 11 will not apply unless and until the aggregate Damages for which one or more Indemnified Persons seek indemnification under Section 11 exceeds $50,000, in which event the indemnification provided for in Section 11 will include all Damages -37- 38 in excess of such $50,000. Except in the event of fraud or breach of a representation regarding tax matters, the aggregate Damages for which the Indemnifying Shareholders will be liable hereunder shall not exceed the Holdback Amount. 11.4 Procedure for Asserting Holdback Claims. If Adaptec wishes to assert a claim against the Holdback Amount for indemnification pursuant to this Section 11 (a "Claim"), Adaptec shall deliver to NFT, as agent of the Indemnifying Shareholders (the "Shareholders' Agent"), a certificate signed by an officer of Adaptec (a "Claim Certificate") providing notice of such claim and specifying in reasonable detail the manner in which the Claim was paid, incurred or otherwise arose, and the nature of the breach, misrepresentation or other matter to which such Claim is related. Adaptec shall act reasonably and in good faith in preparing any such Claim Certificate and in specifying any alleged Claim. If the Shareholders' Agent disputes the Claim, the Shareholders' Agent shall notify Adaptec of such disagreement within ten (10) days of the receipt from Adaptec of the Claim Certificate. Thereupon, Adaptec and the Shareholders' Agent will, during the thirty (30) day period following delivery of the Claim Certificate, negotiate in good faith to resolve their differences with respect to the Claim. Upon the expiration of such 30-day period, Adaptec shall deduct from the Holdback Amount the amount of the original Claim or, if Adaptec and the Shareholders' Agent have agreed on a different amount, reflected in a written memorandum signed by both parties, such different amount. If the Shareholders' Agent does not object in the manner set forth above to the Claim presented in the Claim Certificate, Adaptec shall deduct the amount of the Claim from the Holdback Amount. 11.5 Matters Involving Third Parties. If any third party shall notify Adaptec or any Indemnified Person with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification against the Indemnifying Shareholders, Adaptec or the Indemnified Person shall promptly notify the Shareholders' Agent in writing; provided, however, that no delay on the part of Adaptec or the Indemnified Person in notifying the Shareholders' Agent shall relieve the Indemnifying Shareholders from any obligation hereunder. Adaptec or the Indemnified Person may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner Adaptec or such Indemnified Person reasonably deems appropriate and the Indemnifying Shareholders will remain responsible for any damages suffered by the Indemnified Person resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 11. With respect to the defense of any Third Party Claim, Adaptec or the Indemnified Person shall use reasonable efforts to consider strategy and other suggestions of the Indemnifying Shareholders. Counsel for the Indemnifying Shareholders shall be permitted to monitor Adaptec's or the Indemnified Person's defense of a Third Party Claim for the purpose of advising the Indemnifying Shareholders of the status and progress of the defense. Any such activity shall be at the sole expense of the Indemnifying Shareholders. 11.6 No Indemnity for Corporate Agents. Each of the Indemnifying Shareholders agrees that such Indemnifying Shareholder will not make any claim for indemnification against DKI by reason of the fact that such Indemnifying Shareholder was a director, officer, employee or agent of any such entity or was serving at the request of any such entity as a partner, trustee, director, officer, employee or agent of another entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise) - 38 - 39 with respect to any action, suit, proceeding, complaint, claim or demand brought by Adaptec against the Indemnifying Shareholder (whether such action, suit, proceeding, complaint, claim or demand is pursuant to this Agreement, applicable law or otherwise). 11.7 Shareholders' Agent. (a) Authority. For purposes of Section 11, NFT shall act as the Shareholders' Agent on behalf of holders of Outstanding DKI Stock or their successors or assigns ("Former DKI Shareholders"), subject to the provisions hereof. The Shareholders' Agent shall keep the Former DKI Shareholders reasonably informed of his decisions of a material nature. The Shareholders' Agent is authorized to take any action deemed by him appropriate or reasonably necessary to carry out the provisions of Section 11, and is authorized to act on behalf of the Former DKI Shareholders for all purposes related to Section 11, with such powers as are expressly delegated to the Shareholders' Agent by the terms of this Agreement and the DKI Ancillary Documents, together with such other powers as are reasonably incidental thereto. In addition the Shareholders' Agent is authorized to accept service of process upon the Former DKI Shareholders. Shareholders' Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement or in any other DKI Ancillary Documents, be a trustee for any Former DKI Shareholder or have any fiduciary duty to any Former DKI Shareholder. All decisions and actions of the Shareholders' Agent shall be binding and conclusive upon the Former DKI Shareholders and may be relied upon by Adaptec and DKI. (b) Standard of Conduct. Neither the Shareholders' Agent nor any of its partners, members, directors, officers, employees or agents shall be liable to any of the Former DKI Shareholders for any error of judgment, act done or omitted by him, or mistake of fact or law in connection with his services pursuant to Section 11, unless caused by his or its own gross negligence or willful misconduct. In taking any action or refraining from taking any action whatsoever the Shareholders' Agent shall be protected in relying upon any notice, paper or other document reasonably believed by him to be genuine, or upon any evidence reasonably deemed by him to be sufficient. Shareholders' Agent shall not be required to take any action which is contrary to this Agreement or any other DKI Ancillary Document or applicable law. The Shareholders' Agent may consult with counsel in connection with his duties and shall be fully protected in any act taken, suffered or permitted by him in good faith in accordance with the advice of counsel. In connection with his services under Section 11, the Shareholders' Agent shall not be responsible for determining or verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. (c) Indemnification. Each Former DKI Shareholder agrees to indemnify Shareholders' Agent, ratably in accordance with their pro rata share of the Holdback Amount for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against Shareholders' Agent in any way relating to or arising out of this Agreement or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or the enforcement of any of the terms hereof or thereof or of any such other documents; provided, however, that no Former DKI Shareholder shall be liable for any of the foregoing to the extent they arise from Shareholders' Agent's gross negligence or willful misconduct. Shareholders' Agent shall be fully justified in refusing to take -39- 40 or to continue to take any action hereunder unless it shall first be indemnified to its reasonable satisfaction by the Former DKI Shareholders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. (d) Resignation or Removal of the Shareholder Agent. Subject to the appointment and acceptance of a successor Shareholders' Agent as provided below, Shareholders' Agent may resign at any time thirty (30) days subsequent to giving notice thereof to the Former DKI Shareholders and Shareholders' Agent may be removed at any time with or without cause by action of the Former DKI Shareholders who represented a majority of the rights to the Holdback Amount. Upon any such resignation or removal, the Former DKI Shareholders shall have the right to appoint a successor Shareholders' Agent, which Shareholders' Agent shall be reasonably acceptable to Adaptec. If no successor Shareholders' Agent shall have been appointed by the Former DKI Shareholders and accepted such appointment within twenty (20) days after the retiring Shareholders' Agent giving of Notice of Resignation or the Former DKI Shareholders' removal of the Shareholders' Agent, then the retiring or removed Shareholders' Agent may, on behalf of the Former DKI Shareholders' appoint a successor which shall be reasonably acceptable to Adaptec. Upon the acceptance of any appointment as Shareholders' Agent hereunder, such successor Shareholders' Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed the Shareholders' Agent, and the retiring or removed Shareholders' Agent shall be discharged from its duties and obligations hereunder. After any retiring Shareholders Agent's resignation or removal hereunder as the Shareholders' Agent, the provisions of this Section 11.7 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Shareholders' Agent. (e) Agent in its Individual Capacity. Shareholders' Agent, to the extent it was a Former DKI Shareholder, shall have the same rights and powers under this Agreement as any other Former DKI Shareholder and may exercise the same as though it were not Shareholders' Agent, and the terms "Former DKI Shareholder" or "Former DKI Shareholder" shall include Shareholders' Agent in its capacity as such. 11.8 Non-Exclusive Remedy. Except in the event of fraud or breach of a representation regarding tax matters, each Indemnifying Shareholder's indemnification obligations set forth herein shall be limited to such Indemnifying Shareholder's pro rata portion of the Holdback Amount and the Holdback Amount shall be Adaptec's exclusive remedy against the Indemnifying Shareholder with respect to such obligation. In the event of fraud or a breach of a representation regarding tax matters, if the Holdback Amount shall become depleted. Adaptec and all other Indemnified Persons shall have all available remedies under law or equity against the Indemnifying Shareholders. 12. MISCELLANEOUS 12.1 Governing Law. The internal laws of the State of California (irrespective of its choice of law principles) will govern the validity of this Agreement, the construction of its terms, and the interpretation and enforcement of the rights and duties of the parties hereto. 12.2 Assignment: Binding Upon Successors and Assigns. Neither party hereto may assign any of its rights or obligations hereunder without the prior written consent of the other - 40 - 41 party hereto. This Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.3 Severability. If any provision of this Agreement, or the application thereof, will for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision. 12.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be an original as regards any party whose signature appears thereon and all of which together will constitute one and the same instrument. This Agreement will become binding when one or more counterparts hereof, individually or taken together, will bear the signatures of both parties reflected hereon as signatories. 12.5 Other Remedies. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby or by law on such party, and the exercise of any one remedy will not preclude the exercise of any other. 12.6 Amendment. Any term or provision of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a writing signed by the party to be bound thereby. The Agreement may be amended by the parties hereto at any time before or after approval of DKI's shareholders, but, after such approval, no amendment will be made which by applicable law requires the further approval of DKI's shareholders without obtaining such further approval. 12.7 No Waiver. The waiver by a party of any breach hereof or default in the performance hereof will not be deemed to constitute a waiver of any other default or any succeeding breach or default. The failure of any party to enforce any of the provisions hereof will not be construed to be a waiver of the right of such party thereafter to enforce such provisions. 12.8 Expenses. Each party will bear its respective expenses and legal fees incurred with respect to this Agreement, and the transactions contemplated hereby; provided, however, that if the Merger is consummated Adaptec will pay promptly upon demand the reasonable investment banking, legal and accounting fees and expenses incurred by DKI in this transaction, not to exceed in the aggregate $50,000.00 (the "DKI Legal/Accounting Fee Cap"). Any such fees and expenses in excess of that amount shall be recoverable by Adaptec in accordance with Section 11. 12.9 Attorneys' Fees. Should suit be brought to enforce or interpret any part of this Agreement, the prevailing party will be entitled to recover, as an element of the costs of suit and not as damages, reasonable attorneys' fees to be fixed by the court (including without limitation, -41- 42 costs, expenses and fees on any appeal). The prevailing party will be entitled to recover its costs of suit, regardless of whether such suit proceeds to final judgment. 12.10 Notices. Any notice or other communication required or permitted to be given under this Agreement will be in writing, will be delivered (i) personally, (ii) by registered or certified mail, postage prepaid, (iii) via overnight delivery by a nationally recognized courier service, or (iv) via facsimile with a copy to follow the same day pursuant to methods (i), (ii), or (iii), and will be deemed given upon delivery, if delivered personally, three days after deposit in the mails, if mailed, one day after deposit for overnight delivery, if sent by overnight courier service, or when sent, if sent by facsimile, to the following addresses: (i) If to Adaptec: Adaptec, Inc. 691 South Milpitas Blvd. Milpitas, CA 95305 Attention: Alicia J. Moore Vice President, General Counsel Fax: 408-957-7137 With a copy to: Dennis R. DeBroeck, Esq. Fenwick & West LLP Two Palo Alto Square Palo Alto, CA 94306 Fax: 415-494-1417 (ii) If to DKI: Data Kinesis, Inc. 85 Pine Street Extension Nashua, NH 03060 Attention: Richard L. Napolitano Fax: 603-577-9827 With a copy to: J. Matthew Lyons, Esq. Brobeck, Phleger & Harrison LLP 301 Congress Avenue, Suite 1200 Austin, TX 78701 Fax: 512-477-5813 -42- 43 (iii) If to Shareholders' Agent: NFT Ventures Inc. 12950 Saratoga Avenue, Suite A Saratoga, CA 95070 Fax: 408-252-0757 Attn: Mark Rogers or to such other address as a party may have furnished to the other parties in writing pursuant to this Section 12.10. 12.11 Construction of Agreement. This Agreement has been negotiated by the respective parties hereto and their attorneys and the language hereof will not be construed for or against either party. A reference to a Section or an exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise explicitly set forth. The titles and headings herein are for reference purposes only and will not in any manner limit the construction of this Agreement which will be considered as a whole. 12.12 No Joint Venture. Nothing contained in this Agreement will be deemed or construed as creating a joint venture or partnership between any of the parties hereto. No party is by virtue of this Agreement authorized as an agent, employee or legal representative of any other party. No party will have the power to control the activities and operations of any other and their status is, and at all times, will continue to be, that of independent contractors with respect to each other. No party will have any power or authority to bind or commit any other. No party will hold itself out as having any authority or relationship in contravention of this Section. 12.13 Further Assurances. Each party agrees to cooperate fully with the other parties and to execute such further instruments, documents and agreements and to give such further written assurances as may be reasonably requested by any other party to evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intents and purposes of this Agreement. 12.14 Absence of Third Party Beneficiary Rights. No provisions of this Agreement are intended, nor will be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any client, customer, affiliate, shareholder, partner or any party hereto or any other person or entity unless specifically provided otherwise herein, and, except as so provided, all provisions hereof will be personal solely between the parties to this Agreement. 12.15 Public Announcement. DKI will not make any public announcement of the Merger without Adaptec's prior written consent. Adaptec may, after consulting with DKI, issue such press releases, and make such other disclosures regarding the Merger, as it determines are required under applicable securities laws or regulatory rules. 12.16 Confidentiality. DKI and Adaptec each recognize that they have received and will receive confidential information concerning the other during the course of the Merger negotiations and preparations. Accordingly, Adaptec and DKI each agrees (a) to use its respective best efforts to prevent the unauthorized disclosure of any confidential information concerning the other that was or is disclosed during the course of such negotiations and - 43 - 44 preparations and is clearly designated in writing as confidential at the time of disclosure, and (b) to not make use of or permit to be used any such confidential information other than for the purpose of effectuating the Merger and related transactions. The obligations of this section will not apply to information that (i) is or becomes part of the public domain (other than by the other party's unauthorized or wrongful disclosure), (ii) is disclosed by the disclosing party to third parties without restrictions on disclosure, (iii) is received by the receiving party from a third party without breach of a nondisclosure obligation to the other party or (iv) is required to be disclosed by law. In the event of the termination of this Agreement prior to the Closing of the Merger. Adaptec on the request of DKI, shall return any documents, files diskettes or other tangible property received by Adaptec in the course of its due diligence investigation and shall return or destroy any copies (including electronic files) of such documents and tangible property and any copies of software received by Adaptec; provided however, that this sentence shall not restrict Adaptec's access to any property pursuant to any other outstanding agreement between Adaptec and DKI. This agreement regarding confidentiality shall be in addition to, and not in limitation of, that certain Master Mutual Nondisclosure Agreement dated as of October 10, 1994 between Adaptec and DKI. 12.17 Entire Agreement. This Agreement and the exhibits hereto constitute the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous agreements or understandings, inducements or conditions, express or implied, written or oral, between the parties with respect hereto including the Letter of Intent. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. - 44 - 45 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ADAPTEC, INC. DATA KINESIS, INC. a California corporation a California corporation By: By: ------------------------------- ------------------------------- Its: Its: ------------------------------ ------------------------------ ADAPTEC ACQUISITION CORPORATION a California corporation By: ------------------------------- Its: ------------------------------ The undersigned is executing this Agreement for the purpose of accepting its appointment as Shareholders' Agent pursuant to the terms of Section 11.7 hereof. NET VENTURES, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- -45- 46 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ADAPTEC, INC. DATA KINESIS, INC. a California corporation a California corporation By: /s/ By: --------------------------------- -------------------------------- Its: Vice President and Treasurer Its: -------------------------------- ------------------------------- ADAPTEC ACQUISITION CORPORATION a California corporation By: /s/ --------------------------------- Its: Secretary -------------------------------- The undersigned is executing this Agreement for the purpose of accepting its appointment as Shareholders' Agent pursuant to the terms of Section 11.7 hereof. NFT VENTURES, INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ -45- 47 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. ADAPTEC, INC. DATA KINESIS, INC. a California corporation a California corporation By: By: /s/ ------------------------------ -------------------------------- Its: Its: President/CTO ----------------------------- ------------------------------- ADAPTEC ACQUISITION CORPORATION a California corporation By: ------------------------------ Its: ----------------------------- The undersigned is executing this Agreement for the purpose of accepting its appointment as Shareholders' Agent pursuant to the terms of Section 11.7 hereof. NFT VENTURES, INC. By: /s/ Mark Rogers ------------------------------ Name: Mark Rogers ---------------------------- Title: Secretary/Treasurer --------------------------- -45- 48 Adaptec, Inc. August __, 1996 Page 2 (v) agrees to keep in confidence and not to disclose to any party, other than the undersigned's lawyer, accountant, financial or other similar advisors, the existence or terms of the Plan, until such time as, and only to the extent that, such information is publicly disclosed by Adaptec; and (vi) represents that it has not traded in any securities of Adaptec since June 3, 1996 and agrees not to trade in any securities of Adaptec until the earlier of the Effective Time or the termination of the Merger in accordance with the terms of the Plan. Any capitalized terms not otherwise defined herein shall have the definitions set forth in the Plan. This letter may be signed in counterparts, each of which shall be enforceable against the party or parties signing such counterpart. Upon receipt by Adaptec of signatures for all DKI shareholders whose name appears below, the letter dated August 3, 1996 from such DKI shareholders to Adaptec shall terminate. Very truly yours, NFT Ventures, Inc. By: /s/ MARK ROGERS ----------------------------- Title: Secretary/Treasurer -------------------------- Print Name: MARK ROGERS --------------------- /s/ RICHARD L. NAPOLITANO --------------------------------- Richard L. Napolitano /s/ RICHARD A. DWYER --------------------------------- Richard A. Dwyer ' /s/ CHET JUSCZAK --------------------------------- Chet Jusczak /s/ BOB PERET --------------------------------- Bob Peret /s/ BRYAN PANNER --------------------------------- Bryan Panner 46 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 1000 3-MOS MAR-31-1997 JUN-29-1996 SEP-27-1996 52817 158014 119553 4260 65432 429709 176850 48542 659581 96969 2550 0 0 211981 348081 659581 215043 215043 92550 92550 108974 0 206 15785 14548 1237 0 0 0 1237 .02 .02
-----END PRIVACY-ENHANCED MESSAGE-----