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§8.204 Delaware is a leader in adopting, construing and implementing comprehensive, flexible corporate laws responsive to the legal and business needs of corporations organized under its laws, (b) there is substantial judicial precedent in the Delaware courts as to the legal principles applicable to measures that may be taken by a corporation and as to the conduct of the Board of Directors under the business judgment rule, and (c) the corporation believes that, in general, Delaware law provides greater protection to directors than California law and that Delaware case law regarding a corporation's ability to limit director liability is more developed and provides more guidance than California Principal Reasons for the Proposed Reincorporation As the Company plans for the future, the Board of Directors and management believe that it is essential to be able to draw upon well-established principles of corporate gove rnance in making legal and business decisions. The prominence and predictability of Delaware corpora te law provide a reliable foundation on which the Company's governance decisions can be based, and the Company believes that shareholders will benefit from the responsiveness of Delaware corporate law and Delaware courts to their needs and to those of the corporation they own. Prominence, Predictability and Flexibility of Delaware Law. For many years, Delaware has followed a policy of encouraging incorporation in that state and, in furtherance of that pol icy, has been a leader in adopting, construing and implementing comprehensive, flexible corporat e law s responsive to the legal and business needs Of corporations organized finder its laws. Many corporations have chosen Delaware initially as a state of incorporation or have subsequentl y changed corporate domicile to Delaware in a manner similar to that proposed by t he Company. Because of Delaware's prominence as the state of incorporation for many major corporations, both the legislature and courts in Delaware have demonstrated an ability and a will ingness to act quickly and effectively to meet changing business needs. The Delaware courts have devel oped considerable expertise in dealing with corporate issues and a substantial body of case law has developed construing Delaware law and establishing public policies with respect to corpora te legal affairs. Well-Established Principles of Corporate Governance. There is substantial judicial precedent in the Delaware courts as to the legal principles applicable to me asures that may be taken by a corporation and as to the conduct of the Board of Directors under the business judgment rule. The Company believes that its shareholders will benefit from the well-e stablished principles of corporate governance that Delaware law affords. Increased Ability to Attract and Retain Qualified Directors. Both California and Delaware law permit a corporation to include a provision in its certificate of incorporation which reduces or limits the monetary liability of directors for breaches of fiduciary duty in certain circumstances. The increasing frequency of claims and litigation directed against directors and officers has greatly expanded the risks facing directors and officers of corporations in exercising their respective duties. The amount of time and money required to respond to such claims and t o defend such litigation can be substantial. It is the Company's desire to reduce these risks to its directors and officers and to limit situations in which monetary damages can be rec overed against directors so that the Company may continue to attract and retain qualified direc tors who otherwise might be unwilling to serve because of the risks involved. The Company believes that, in general, Delaware law provides greater protection to directors than California l aw and that Delaware case law regarding a corporation's ability to limit director liabili ty is more developed and provides more guidance than California law. Adaptec, Inc. 7/18/97 §8.205 To permit a corporation to lend money to its employees to purchase shares of its Common Stock in accordance with its Stock Option Plan by changing the state of incorporation from the District of Columbia to Maryland Because the Company moved its headquarters in 1983 to Chevy Chase, Maryland, a suburb of Washington, D.C., primarily to escape the incidence of a special taxation in the District of Columbia which is not effective in Maryland, the Board of Directors has given consideration to changing the state of incorporation to Maryland. The Maryland Corporations and Associations Code is in some respects more modern and, therefore, more flexible in terms of permitting corporate actions. Further, while at the present time the Com pany is not liable for taxes in the District of Columbia, the Board of Directors believes that there is a possibility that in the future the Company could be subject to taxes in the District of Columbia because of its corporate domicile there. Another reason for effecting the change of incorporation is to permit the Company to lend money to its employees to purchase shares of the Common Stock in accordance with the Company's Stock Option Plan. For additional information on the Plan, see Modification of Stock Option Plan, Proposal No. 2 hereinabove. The District of Columbia Business Corporation Act does not authorize corporations organized under its provisions to lend money to or otherwise assist officers and directors of such corporations. Promissory notes and future services do not constitute legal consideration for the purchase of stock in District of Columbia corporations. Under these circumstances, such loans could not be made. The Maryland corporate code, however, expressly permits the Company to sell its stock to an officer, director or employee of the Company in consideration for an obligation for future payment if, in the judgment of the Board of Directors, the agreement or transaction providing for the purchase of stock reasonably may be expected to benefit the corporation. Further, Maryland corporations "may lend money to, guarantee an obligation of, or otherwise assist an officer or other employee of the corporation or of its direct or indirect subsidiary, including an officer or employee who is a director of the corporation or the subsidiary, if the loan, guarantee, or assistanc e . . . in the judgment of the directors, reasonably may be expected to benefit the c orporation . . ." Md. Corps. & Ass'ns Code Ann. Section 2-416(a)(1) (1983 Cure. Supp.). The Board of Directors believes that the Stock Option Plan, as it is proposed to be modified and including its provisions for making loans to option holders for the exercise thereof, will substantially benefit the Company.